Deep in the throes of a huge economic and geopolitical crisis, characterized by extremely tight oil and gas markets and no visible end to the war in Ukraine, the world is facing a severe energy conundrum. The United States and its allies have just promised to relocate Heaven and Earth to help Ukraine win its battle against Russia’s unprovoked invasion. But all appearances point to a crisis that has degenerated into a war of attrition that could last for months or even years.
Even more worrying is that Europe has not yet devised an appropriate plan to break away from Russia’s energy markets, with recent EU claims that it is working on a sixth package of sanctions, which will include some form of oil embargo, simply covering up the cracks. Europe consumes about 14mb / d of oil, of which about 30-40% (5mb / d) is covered by imports from Russia.
Two weeks ago, OPEC + told Europe directly that it could not help it solve its energy problems. OPEC says current and future sanctions against Russia could lead to one of the biggest shocks in oil supplies, and that it would be impossible to replace those volumes. OPEC itself is extremely unable to meet the challenge: last month, OPEC reported the largest increase in production in seven months, but still fell 764,000 barrels per day below its target. This has become a constant topic, with the cartel almost always failing to achieve its goals, largely due to years of underinvestment by its members.
A Wall Street trader believes that the US Shale is ready to rise to the occasion.
In a note to customers, Goldman said he sees “a turning point in the oil and gas capital spending cycle, as seven years of downturn have depleted spare capacity in most parts of the industry and the Russia-Ukraine conflict gives a new sense of urgency. around security of supply. “
Goldman cites five stable factors that could triple capital spending on oil and gas from recent lows.
- Declining inventories: The life of oil reserves declined by 52% from 2014 to 2022 as the industry stopped exploring new resources. Investment delays from 2014 will cost 10 million barrels a day of oil production – equivalent to production in Saudi Arabia – by 2024.
- Rising cost curve: The best cost project curve has become smaller and steeper, with a stimulating price of $ 90 per barrel at the current cost of capital.
- Investment growth: we expect oil and gas activity to increase by 11% [per year] growth (20% for LNG and shale) by 2024, from a decline of 7% [per year] since 2014
- End of non-OPEC growth: we estimate that in 2019 there will be peak production outside OPEC. Outside OPEC, with the exception of shale and Russia, a phase of structural decline is beginning.
These are the sentiments shared by Larry Fink of BlackRock, who recently said that higher energy prices “will stimulate a huge amount of investment.”
Here are Goldman Sachs’ top 5 oil reserves for projected production growth for 2021-24; quality of the portfolio of growth projects; growth of cash flows from top projects over the next five years; set of options; state and technical risk.
- Hess Corp.
Market capitalization: $ 33.0B
12-month return: 50.9%
Headquartered in New York City, New York, Hess Corporation (NYSE: HES) is involved in the exploration and production of crude oil, liquefied natural gas (NGLs) and natural gas.
The company operates in two segments, Research and Production and Midstream. It operates mainly in the United States, Guyana, Malaysia / Thailand Joint Development and Malaysia; and exploration activities mainly in the offshore regions of Guyana, the Gulf of Mexico and the offshore Suriname and Canada.
Hess is one of the largest operators in Bakken Shale, with 800,000 net acres and a net production forecast of an average of between 330,000 and 340,000 barrels of oil equivalent per day in 2022, excluding Libya.
Hess disrupted the trend in the industry to return excess cash flows to shareholders. The two went out and announced plans for huge capital expenditures in an attempt to increase production. Hess announced a $ 2.6 billion capital expenditure budget for 2022; a good 37% jump, with Bakken spending rising 75% to $ 790 million. At Bakken, Hess plans to work with 3 platforms to achieve its 168 kb / d production target.
- EOG resources
Market capitalization: $ 68.0B
12-month return: 60.5%
EOG Resources, Inc. (NYSE: EOG) is a Houston, Texas-based company that develops, manufactures and markets crude oil and natural gas and liquefied natural gas. Its main production areas are in New Mexico and Texas in the United States; and the Republic of Trinidad and Tobago.
As of December 31, 2021, the EOG had total estimated net proven reserves of 3.747 million barrels of oil equivalent, including 1.548 million barrels (MMBbl) of crude oil and condensate reserves; 829 MMBbl of liquid natural gas reserves; and 8.222 billion cubic feet of natural gas reserves.
EOG boasts more than 10,000 potential “premium” drilling sites and is considered one of Shale Patch’s most technically experienced wells.
- Pioneer’s natural resources
Market capitalization: $ 57.2B
12-month return: 56.2%
Another Shale Patch player, Pioneer Natural Resources (NYSE: PXD) operates as an independent oil and gas exploration and production company in the United States. The company researches, develops and produces oil, liquefied natural gas (NGL) and gas. PXD has operations in the Midland Basin in West Texas.
As of December 31, 2021, the company had proven undeveloped reserves and proved developed non-productive reserves of 130 million barrels of oil, 92 million barrels of NGL and 462 billion cubic feet of gas; and holdings in 11 gas processing enterprises.
Although GS’s best choice, PXD may struggle to increase production: Pioneer CEO Scott Sheffield has said several times that the industry is struggling to increase production due to labor, steel, sand and shortages. equipment.
- ConocoPhillips
Market capitalization: $ 124.4B
12-month return: 85.3%
ConocoPhillips Inc. (NYSE: COP) is a Houston, Texas-based company that researches, manufactures, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and liquefied natural gas worldwide. It mainly deals with conventional and narrow oil tanks, shale gas, heavy oil, LNG, oil sands and other production operations.
COP’s portfolio includes non-traditional plays in North America; conventional assets in North America, Europe, Asia and Australia; various LNG developments; oil sands in Canada; and an inventory of conventional and unconventional research perspectives. ConocoPhillips was founded in 1917 and is headquartered in Houston, Texas.
Scotia Bank recently improved its COP shares for purchase after the shares lagged behind the E&P index by 7% since the beginning of the year; Scotia also expects the company to exceed its first-quarter earnings forecast when it reports first-quarter financial results for 2022 on May 5 before the market opens.
- Space energy
Market capitalization: $ 3.0 billion
12-month return: 135.5%
Headquartered in Dallas, Texas, Kosmos Energy Ltd. (NYSE: KOS) is a deep-sea independent oil and gas exploration and production company focused on the Atlantic border.
The company’s main assets include offshore production in Ghana, Equatorial Guinea and the Gulf of Mexico, as well as offshore gas development in Mauritania and Senegal. He also maintains a proven pool exploration program.
The only average capitalization among these elections, perhaps it is no coincidence that it boasts the highest return on shareholders in the last 12 months. Although these smaller companies tend to receive less analytical coverage than large capitals, they offer more growth opportunities than large-cap stocks, but show less volatility than their small-cap counterparts.
Many mid-cap energy stocks have successfully outperformed their larger counterparts in recent months, with some now attracting Wall Street attention thanks to the energy crisis and the Russian invasion of Ukraine.
A few weeks ago, Piper Sandler recommended four medium- and small-cap stocks: Murphy Oil Corp. (NYSE: MUR), Centennial Resource Development, Inc. (NASDAQ: CDEV), Laredo Petroleum (NYSE: LPI) and Berry Corp. (NASDAQ: BRY), raising everyone from neutral to purchase. Murphy Oil and Centennial are genuinely mid-capped with market capitalizations of $ 6.5B and $ 2.5B, respectively, while Laredo and Berry are small-capped with valuations of $ 1.4B and $ 977.2 million, respectively.
By Alex Kimani for Oilprice.com
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