12th February 2024

Ready for a mighty fine week?

Here’s what happened over the weekend in all things oil, gas, and energy, without the hot air:

• 🤝 A $50bn Permian merger

• 🤯 Bitcoin’s mind blowing power demand

• ❓ Why Saudi cut its capacity plans

• 🧠 Total’s energy pragmatism

• ➕ plus recovering a sunken rig; hydro and global gas markets; Trump ruffles more feathers; major spill in T&T; Vitol acquiring Saras; UK offshore in trouble.

Let’s go.

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• Diamondback and Endeavor close to merger - another mega deal for you. This time it’s Diamondback, which is splashing ~$25bn in cash and stock to acquire rival Permian producer Endeavor. The combined company would be worth ~$50bn and produce over 400 kb/d of oil, making it the third largest producer in the Permian behind Exxon and Chevron. The deal hasn’t been confirmed yet but an announcement is expected any minute now.

• Conoco bidding for Citgo refinery using its claims- the Venezuelan-owned refining company in the US is being auctioned to raise money for those owed by Venezuela. Rather than bid with cash, parties are reportedly bidding using their claims on Venezuela. Conoco says it’s owed $12bn by Venezuela and is using that as a bid for the refinery. Get it?

• Fire at Phillips 66 Billings refinery - no injuries were reported from the blaze at its 60 kb/d facility in Montana. This is the latest in a string of safety blunders for the company.

🏰 Europe

• Vitol acquiring 35% in Saras - the commodity trader is acquiring a stake in the Italian refining company from the Moratti family, valuing it at ~$1.8bn. Upon completion of the deal, Vitol is obliged to make an offer for the rest of the shares of Saras, which it says it will do at the same price per share of 1.75 euros.

• UK offshore sector in trouble - the UK offshore O&G sector has warned that 42,000 jobs and £26 billion of value would be wiped out under new Labour proposals to extend the windfall tax on UK oil and gas producers. Why are European politicians so insistent on destroying their own economies?

🕌 The Middle East

• The thinking behind Saudi’s capacity cut - Saudi Energy Minister Prince Abdulaziz has said a key reason behind the decision to reduce the country’s oil capacity target from 13 mmb/d to 12 mmb/d is that the country is now using far less oil (~950 kb/d less) in its power generation than it has in the past. Saudi is investing heavily into domestic gas and solar production and so needs less oil in its power stations. “Why should we be the last country to hold capacity when it’s not appreciated or recognized?”, he remarked.

⛩️ Asia & Oceania

• Recovery of sunken rig underway - Velesto Energy is starting the second phase of the recovery and recycling of its ill-fated jack-up Naga 7 that sunk to the seabed offshore Malaysia three years ago while on charter to ConocoPhillips. The rig was insured to a value of ~$135m.

🗿 Central & South America

• Major oil spill off Trinidad & Tobago - the country is considering declaring a national emergency after a ship ran aground last week, spilling large quantities of oil into the sea, and impacting ~15kms of coastline. The spill is currently Level 2, meaning the country believes it can deal with the spill.

• Pemex credit rating slashed - unsurprisingly, given the company has about $100bn in debt, Moody’s has cut Pemex’s credit rating by two notches to B3. This means it’s borrowing costs will likely rise further.

🌍 GEOPOLITICS & MACRO

• Trump getting railed for NATO remarks - the probable next US president said he would encourage Russia to attack NATO members that hadn’t paid their fair share of the NATO budget. As you can imagine, this didn’t go down too well with the rest of the NATO alliance, with various politicians calling the comments “reckless”, “unhinged”, “undermining” etc. It’s election year, so there’ll be plenty more where this came from. Prepare the popcorn.

• Trump is the energy sector’s top pick for president - donations from the energy industry for Donald Trump far surpass those for Republican challenger Nikki Haley and Joe Biden. Oil & gas output has boomed under Biden but his general anti O&G stance, as evidenced by the recent LNG moratorium, have discouraged donors.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Total boss’ energy pragmatism - in an interview with the FT, Patrick Pouyanné, has given his views on the state of the energy transition:

  • “Fundamentally this energy transition will mean a higher price of energy…”

  • “We don’t think [renewables are cheaper] because a system where you [have] more renewable intermittency is less efficient”

  • “We cannot ask African countries just to avoid to develop the resources because we have developed their resources for our own comfort for 20 years”

  • “If we don’t engage with the global south where the emissions will come from — China, from India, from Brazil, from South Africa — if we don’t engage with them by bringing them energy, there is no way to find a solution to the climate”

  • Right on, Paddy, right on.

• Brazil’s hydro adding to gas glut - plentiful water in Brazil’s reservoirs has meant that the country’s hydro power output has surged over the past year. As a result, its gas use in power generation declined by ~70% in 2023, and its gas imports fell to their lowest level in 20 years. Interesting that rains in Brazil and China (the world’s largest hydro producer) have very direct impacts on global gas markets.

• Bitcoin’s power demand is greater than Australia’s - power demand from Bitcoin mining more than doubled in 2023, meaning that it now uses more electricity every year than the entire country of Australia. That is mind blowing. Has anyone actually got a decent use case for it yet?!

• Shell closing California hydrogen stations - the company had 55 light-duty hydrogen stations in the state but has shut them all down due to “hydrogen supply complications and other external market factors”. In other words, there isn’t enough hydrogen. The technology is struggling to catch on in small transport, which is no bad thing, as it’s an extremely inefficient way of moving light vehicles.

🛢️ BOTTOM OF THE BARREL

It is pretty wild that US natural gas is less than $2/mmBtu and gas companies are still adding more rigs.

I know there’s a lag between pricing and rig count but still…

Is energy massively undervalued or is tech overvalued? Plenty of both, I reckon.

Had to squeeze a Super Bowl meme in here somehow:

👋 BEFORE YOU GO 

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Thanks for reading. Have a day out there. 🛢️🛢️