The 2021 domestic oil and gas boom continues into May, driven by strong crude oil prices which most analysts believe will become stronger, recovering global demand, and fiscal discipline practiced by consumers. major shale producers. This combination of factors promises a great record year for the US oil and gas industry.
How big could he become? International business intelligence firm Rystad Energy predicts this could be the most important year yet for US shale. The company released a report this week predicting the industry’s overall pre-hedging revenue could reach a record high of $ 195 billion in 2021, beating the previous record of $ 191 billion set in the previous big boom in 2019.
Rystad predicts that sales of hydrocarbons from wells in the Permian Basin alone could reach $ 110 billion, and also takes into account estimates for all shale wells and tight wells in the Bakken, Niobrara, Marcellus and Anadarko regions of the country.
An important caveat, however: Rystad adds that the shale sector may not reach a record turnover until 2022 due to losses suffered in hedging programs that tie the production of some companies at prices below the prices. current market. Equally important: Rystad sees corporate fiscal discipline in the sector continuing through 2021, saying in a statement that “As hydrocarbon sales, operating cash flow and EBITDA of oil producers Restricted all test new records in the WTI environment at $ 60 a barrel, capital spending does not grow exponentially as producers remain committed to maintaining operational discipline. “
Artem Abramov, head of shale research at Rystad Energy, adds: “Corporate reinvestment rates are generally expected to be between 60% and 70% this year due to debt service and coverage losses.”
So while the industry will surely continue to activate more drilling rigs in the last 8 months of 2021, no one should expect the current Enverus Daily Rig Count, which stands at 524 , bounces back to over 1000, where it was during the last boom. . A count of 650 to 700 by the end of the year seems possible, however, and that would be a healthy situation for everyone involved.
The ongoing consolidation in the industry continued this week with another big merger. Interestingly, this one was not centered in the Permian Basin, where so much industry M&A activity has taken place in recent years. Instead, he focused on natural gas assets in the prolific Marcellus Shale region, the largest natural gas production area in North America.
On Thursday, Pittsburgh-based EQT EQT + 12.4% Corporation announced a $ 2.925 billion takeover of privately held Alta Resources, a move that will provide EQT with a large footprint in the region’s sweet spot. Marcellus Shale in northeastern Pennsylvania. The deal will add 1 billion cubic feet of natural gas production per day to EQT’s portfolio and generate expected annual adjusted EBITDA of $ 550 to $ 600 million for the company. As part of the deal, EQT also acquired significant midstream assets comprising approximately 300 miles of owned and operated gas gathering lines with a flow capacity of 630 MMcf / d, as well as a freshwater system. of 100 miles with a storage capacity of 255 million gallons.
In an email, senior mergers and acquisitions analyst for Enverus Andrew Dittmar noted that the more positive economic outlook had had the effect of making private companies like Alta more attractive takeover targets. private business is probably fueled by good prospects. for economic activity in 2021, leading to higher commodity prices, ”Dittmar noted. “Additionally, a strong rebound in public E&P stocks in late 2020 and early 2021 shifted the value proposition between public and private acquisitions, with public companies now appearing to be relatively more expensive. Improving stock prices also give public buyers a more powerful currency when they transfer stocks to their private counterparts. “
Dittmar also notes that the same economies of scale and proximity to operating considerations that have driven so many recent Permian-based mergers are also key drivers of the EQT / Alta deal: the consolidation of production and acreage has been a central objective for P&P looking to capture savings. scale and reduce their cost structure, ”said Dittmar. “While in 2020 this has almost entirely taken the form of a public-public E&P consolidation, in 2021, so far the focus has been on the turnover of private operators. This includes the purchase by Enerplus of Bruin E&P in the Bakken, Pioneer Natural Resources PXD + 1.8% acquiring DoublePoint Energy in the Permian, and now this transaction. “
Enverus expects the trend of consolidation in shale basins to continue through 2021, citing the likelihood of high commodity prices and heavily fractured ownership in these regions, which Dittmar says leaves “… additional leeway for other agreements that should benefit producers by building economies of scale.”
These factors, and many more, also leave additional leeway for the US oil and gas boom of 2021 to continue through 2022. Buckle up.