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US Oil & Gas Review

US Oil & Gas Review


The value of upstream deals in the United States dropped in the first quarter of 2023, natural gas output also grew at the start of the year, but drilling activity weakened as we entered the second quarter with oil and gas prices retreating and uncertainties mounting.

The US oil and gas industry continues to call on legislators to enact a permitting reform, which, the sector says, is crucial for securing a reliable and affordable energy supply in the future.

Slow US Deal-Making in Q1

The US shale patch still has opportunities for mergers and acquisitions (M&As), despite the fact that upstream deals fell in terms of both volume and value in the first quarter, Enverus Intelligence Research (EIR) said in a report in early May.

A total of 16 upstream deals for a combined $8.6 billion were announced in the first quarter. Of those, more than $5 billion in deals took place in the Eagle Ford shale play, in “a surprising resurgence in that mature play,” Enverus noted.

The value of the M&As was down by around 20 percent compared to the first quarter average since 2016, while deal volume also continued its multi-year collapse with a disclosed volume of 80 percent less than the Q1 average. That resulted in an average deal size of more than $500 million.

“Last quarter was an outlier in terms of the deal targets and types for upstream transactions,” said Andrew Dittmar, director at Enverus.

“Rather than public E&Ps focusing on buying undeveloped inventory in the Permian Basin from private companies, most of the deals targeted mature assets in the Eagle Ford and included more public-to-private transactions plus a corporate merger.”

The Eagle Ford has producing assets whose proximity to the US Gulf Coast has drawn buyers from outside the US in recent months. Such a deal was agreed by one of the world’s largest chemical makers, UK-based INEOS, which entered US oil and gas production after agreeing to buy Eagle Ford assets from Chesapeake Energy for $1.4 billion. This agreement was the fourth-biggest in terms of value in the US upstream in the first quarter, according to Enverus’ estimates.

However, if buyers look for undeveloped assets, the top shale-producing play, the Permian, is the place to go, the analysts at Enverus say. Yet, rising prices for undeveloped acreage in the Permian have been weighing on the deal-making market in recent months.

“M&A may have slowed, and shale may be in its later innings, but there are still opportunities to be had,” Enverus’ Dittmar said.

“The scramble for dwindling inventory is on, and oil prices are in a good place for M&A where both buyers and sellers feel comfortable transacting.”

But deals in the gas sector could continue to be challenged in the near future by volatile and low US benchmark natural gas prices, according to Enverus.

Natural Gas Production and LNG Exports Set for Long-Term Growth Despite the current low gas prices and the slowdown in drilling activity, US natural gas production is set to grow by 15 percent and LNG exports are expected to surge by 152 percent between 2022 and 2050, the US Energy Information Administration (EIA) forecasts in the reference case in its Annual Energy Outlook 2023.

The EIA expects natural gas production to rise to 42.1 trillion cubic feet (Tcf) by 2050, largely driven by LNG exports. Natural gas production growth on the Gulf Coast and in the Southwest reflects increased activity in the Haynesville Formation and Permian Basin, which are close to infrastructure connecting natural gas supply to growing LNG export facilities, the US administration said.

“We project continued rising global demand for natural gas, which makes it economical to build additional LNG export facilities in the United States,” the EIA said in the outlook.

First Major US Refinery Expansion since Pandemic The US also saw earlier this year the first major refinery capacity expansion come online since the COVID-19 pandemic. ExxonMobil raised the capacity of its Beaumont refinery on the US Gulf Coast by 250,000 barrels per day (bpd), bringing total processing capacity to more than 630,000 bpd and making it one of the largest refineries in the United States.

The pandemic has led to several refinery closures, and US refinery distillation capacity decreased from 19.0 million bpd at the start of 2020 to 17.9 million bpd at the start of 2022, the EIA notes.

Beaumont’s added capacity is the largest of a cluster of new capacity expected to come online in 2023 and 2024, much of it concentrated on the Gulf Coast. The region has historically been the largest refining hub in the United States and hosts 8 of the 10 largest refineries in the country, the EIA said.

US Oil and Gas Industry Delivers $1.8 Trillion in Economic Benefits The US oil and natural gas industry supported 10.8 million jobs and contributed nearly $1.8 trillion to the US economy in 2021, a new study commissioned by the American Petroleum Institute (API) and prepared by PricewaterhouseCoopers (PwC) showed in the middle of May.

The jobs the industry supported accounted for 5.4 percent of total U.S. employment, while the oil and gas sector generated an additional 3.7 jobs elsewhere in the US economy for each direct job in the natural gas and oil industry. The industry produced $909 billion in labour income, or 6.4 percent of the US national labour income, the study showed.

Oil and gas activities also supported nearly $1.8 trillion in US gross domestic product, accounting for 7.6 percent of the national total GDP. Naturally, Texas is the biggest driver of economic contributions from oil and gas, generating $454.5 billion for the state’s economy. While highlighting the benefits of the industry to the US economy, API continued to call on lawmakers to pass a durable permitting reform.

In early May, US Senators Shelley Moore Capito (R-W.Va.), Ranking Member of the Senate Environment and Public Works (EPW) Committee, and John Barrasso (R-Wyo.), Ranking Member of the Senate Energy and Natural Resources (ENR) Committee, introduced two pieces of legislation to substantively reform the permitting and environmental review processes.

API President and CEO Mike Sommers commented on the introduction of the bills, “Modernizing our permitting process will speed up approvals, create American jobs, and enable the faster movement of energy where it is needed most. Thanks to new bills from Senators Barrasso and Capito we are another step closer to bipartisan permitting reform, and we will continue to work with lawmakers to achieve durable reform for the benefit of all Americans.”

Days before that, API had joined with other members of the Natural Gas Council in sending a letter to US Senate leadership urging them to advance policies that would expedite the permitting process by creating clear timelines, clarifying the scope of agency review, and reducing the uncertainty around judicial review.

“Clear, predictable infrastructure permitting processes remain instrumental to achieving our shared energy, economic, security, and climate-related goals,” the Natural Gas Council wrote in the letter.

“Unfortunately, the current processes to site and approve new and expanded infrastructure remain cumbersome, often stalling projects for years with duplicative reviews, unnecessarily burdensome approvals, and unending legal challenges. These inefficiencies hamper access to domestic natural gas resources, creating reliance on imports, raising energy costs in certain regions, and, in the worst cases, limiting access to energy during periods of extreme weather,” the letter reads.

US Oilfield Services Employment Rises To The Highest Since March 2020 Employment in the US oilfield services and equipment sector increased by 5,143 jobs to its highest level since March of 2020, preliminary data from the Bureau of Labor Statistics (BLS) and analysis by the Energy Workforce & Technology Council showed in May.

Employment in April reached 662,454, and the increase continues to bring the sector closer to the pre-pandemic numbers of 706,528 in February 2020, Energy Workforce said. “The April job increases are significant and show the resilience of our sector through a slowing overall economy. The oilfield services sector is thriving and welcoming new talent across numerous specialties,” said Leslie Beyer, CEO, Energy Workforce & Technology Council.

“Our sector continues to exceed expectations by meeting spikes in demand while developing new technology and deploying innovative production processes that are lowering emissions.”

Read the latest issue of the OGV Energy magazine HERE

Published: 13-06-2023

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