May marks a new month, and it’s essential to assess the energy landscape of April. Our Enverus Intelligence® | Research (EIR) team has scrutinized critical trends and advancements, delivering to you insightful analyst takes that can shape your business decisions. Being well-informed will enable you to leverage upcoming energy opportunities in 2023. Continue reading and uncover the latest energy market insights.
Oil equities reign supreme: However, long-term opportunities in gas or hybrid equities (April 20, 2023)
Our near-term outlook for commodity prices favors oil equities over the next 12 months, but we continue to like long-term opportunities in gas or hybrid equities following the U.S. LNG buildout. Lower leverage across the space has reduced oil price beta differentiation across peer groups. We estimate that a $10 improvement to WTI prices increases our median valuations by approximately 25% for both large-cap and SMID equities. Investors focus on inventory quality and depth is reflected in trading multiple premiums amongst the peer-groups with inventory-advantage large-caps trading at a premium to SMID peers.
Big players, big opportunities: Large-caps win out on core Permian inventory deals (April 20, 2023)
We expect upstream M&A will build on an active start to the year as more oil-focused E&Ps join the fray to secure a dwindling number of high-quality inventory opportunities. Pricing for core Permian inventory has already topped $2 million per location and a deal pricing at $3 million and up is likely this year. Given the need to also keep deals accretive to financial metrics, core opportunities will likely go to large-caps with premium equity valuations. Meanwhile tier two or three Permian inventory, which has been selling for $1-2 million per location, plus smaller and cheaper bolt-on opportunities, will be targeted by SMID-caps. Given a focus on undeveloped DSUs, combined with a likely willingness to sell, we see Ameredev, CrownQuest and Tap Rock as among the top targets in the Permian. Equal quality inventory outside the Delaware and Midland basins is similarly priced but rarer to find. More assets in other plays are weighted towards locations with breakeven pricing at $50/bbl or more and are transacting at production value only or a modest premium for upside. The Eagle Ford is ripe for more M&A of this type, especially by new entrants Baytex Energy and INEOS.
From Golden State to duck curve: The changing landscape of solar power in California (April 18, 2023)
California used to be a golden state for solar power producers, but exponential solar growth has led to a timing imbalance between peak demand and solar generation, referred to as the “duck curve.” This has caused a decline in net power demand during peak solar hours, leading to a discount in the capture price for solar projects in the California ISO. However, this could be a boon for projects with co-located battery storage, as they can charge with discounted power during the day and discharge during evening peak pricing. These flexible resources will be critical in maintaining system reliability as renewable penetration increases to meet state-mandated goals of 100% zero-carbon energy supply by 2045 (read more here).
First oil achieved: A look at Mad Dog Phase 2’s journey (April 14, 2023)
After dealing with start-up snags for six months, BP, WDS and CVX eventually achieved first oil at Argos platform in Gulf of Mexico. Mad Dog Phase 2 features 14 producer wells and is expected to reach its 140 kboe/d capacity by the end of this year. On a development-forward basis, we estimate the 750 MMboe project requires a $47 WTI price to break even. Commencing production on schedule, in late 2021, would lower the breakeven by $4/boe.
Dairy RNG facility delayed after devastating explosion at Texas farm (April 14, 2023)
South Fork Dairy in Dimmitt, Texas, exploded on Monday killing an estimated 18,000 of the approximately 19,000 cows onsite, which the county sheriff believes was caused by a manure vacuum overheating which ignited methane in the air and allowed a fire to spread to where the cows were held. Construction had recently started on a dairy RNG facility at the South Fork Dairy that was going to be operated by CLNE, but that project was unrelated to this tragedy. It was forecasted to produce 2.6 million GGEs per year of ultra-low CI RNG once completed but will likely be delayed now if not completely scrapped. CLNE has traded flat since the announcement on Monday (April 14, 2023) evening.
Uncovering the hidden treasure trove: Montney’s underreported liquids production (April 12, 2023)
We estimate that approximately 40% of cumulative Montney wellhead liquids production, equivalent to approximately 302 MMbbl, has been underreported in raw public production data since the start of horizontal well development. After correcting for the underreporting, the entire Montney fairway emerges as an extremely competitive and profitable player among North America’s top plays (read more here).
OVV’s bold move: Tripling its inventory and doubling its life with EnCap’s portfolio (April 04, 2023)
OVV’s bold move to buy all three of EnCap’s marketed portfolio companies (Black Swan, PetroLegacy, Piedra) resulted in a 12% rally in its stock price, more than double the XOP. The outperformance was warranted in our view as the $4.275 billion worth of Midland properties that also contain among highest percentage of undeveloped DSUs nearly doubled OVV’s corporate inventory life of sub-$50/bbl breakeven locations from around three years to nearly six. EnCap may have come out even better as it was able to unload around 700 core locations at more than $2 million each after we fully valued the high-decline production base at PV-10. On the other side, EnCap portfolio company Grayson Mill scooped up OVV’s Bakken asset for PDP PV-20 in our view and got around 100 locations (half sub $50/bbl breakeven) for free. The relative pricing is a sign of the market with few big, strategic opportunities left to buy inventory and multiple companies that need them while PDP-weighted opportunities are more plentiful.
Powering the future: Why lithium, copper and nickel demand will skyrocket with EV adoption (April 3, 2023)
The rapid adoption of electric vehicles (EVs), with a projected 65% market penetration by 2030, is poised to significantly impact the lithium, copper, and nickel markets. As integral constituents in EV batteries, the demand for these metals is anticipated to experience a remarkable surge. Our recent report emphasizes this escalation in demand will render the markets for these critical metals tight until 2035. EIR foresees factors such as diversified battery technologies, metal substitution and recycling will mitigate potential supply constraints, ensuring the availability of metals for battery production and bolstering the widespread adoption of EVs. Investors and stakeholders in these metal markets should prepare for noteworthy growth opportunities, specifically in copper markets where commodity price is yet to reflect anticipated tightness.
OPEC’s surprise cut: Shockwaves through oil markets (April 3, 2023)
To the surprise of many, OPEC announced a plan to cut their output by 1.16 MMbbl/d from February production levels beginning in May and lasting until the end of 2023. Russia has also agreed to extend their cut of 0.5 MMbbl/d which was set to expire this summer to the end of the year. We have previously noted that we expect OPEC to respond if prices remained below $85/bbl for a longer period of time but are surprised by how soon the response came. This surprise cut from OPEC provides fundamental support for our call of $100 oil by 3Q23. (click here to learn more)
Green, but not green enough? Canada’s clean tech plan compared to the U.S. (April 1, 2023)
The Canadian government unveiled its 2023 budget, featuring a $21 billion Made-In-Canada plan aimed at bolstering the nation’s presence in the clean technology sector. The plan primarily focuses on electrification, clean technology and hydrogen, with 78% of funding allocated to these areas. The introduction of “Contracts for Difference” to support future carbon and hydrogen prices is a key component in de-risking CCUS investments and fostering competition with the IRA’s 45Q tax credit. While the budget provides competitive investment opportunities in battery manufacturing and zero-emission technology supply chains, it is our view that the U.S. still offers superior incentives for RNG, hydrogen, biofuels and EV charging network infrastructure.
Keeping up with an evolving industry
With the energy sector constantly evolving, staying ahead of the game is crucial, and keeping up with new developments is key to success. To stay informed on the energy industry, we invite you to subscribe to EIR’s LinkedIn page. Thank you for taking the time to read through our latest energy industry update, and we look forward to continuing to provide valuable insight into navigating today’s ever-changing energy landscape!
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.
