Connect with us

Oil & Energy

‘Exxon’s Falling Production, Highly Bullish For Oil Prices’

Published

on

Last week, ExxonMobil (NYSE:XOM) reported Q 2 2021 earnings in one of big oil’s most anticipated scorecards this earnings season. The United States’ largest oil and gas company posted stellar earnings that proved that the worst for the U.S. shale industry might finally be in the rear view mirror. Exxon’s Q2 earnings swung to a $4.7billion profit from a loss $1.1billion in the year-earlier quarter while revenues more than doubled to $67.7billion (+107.7 percent Y/Y), with both metrics exceeding Wall Street’s expectations.
Exxon said that its impressive earnings were driven by strong oil and natural gas demand as well as the best-ever quarterly chemical and lubricants contributions.
The company was able to achieve those results despite declining production: Q2 overall production slipped 2% Y/Y to 3.6million boe/day, despite production volumes in the Permian Basin jumping 34% Y/Y to 400K boe/day.
Exxon’s Q2 production clip marks the lowest level since the 1999 merger that created the oil and gas giant that we know today.
Meanwhile, H1 Capex clocked in at $6.9 billion, with full-year spending expected to come in at the lower end of its $16billion-$19billion guidance range.
Exxon says cash flow from operating activities of $9.7 billion was the highest in nearly three years and sufficient to cover capital investments, dividends, and pay down debt.
But persnickety shareholders appear unimpressed and have been bidding down XOM shares after the company failed to announce any share buyback program.
Whereas Chevron  (NYSE:CVX), Shell (NYSE:RDS.A),and  TotalEnergies (NYSE:TTE) all have announced a return to stock buybacks during the current earnings season, Exxon has opted to pay down debt rather than reward shareholders. Exxon suspended buybacks in 2016 as it went on one of the most aggressive shale expansions, particularly in the Permian.
WSJ Heard On The Street’s Jinjoo Lee says Exxon has less flexibility than its peers, thanks to years of overspending followed by a brutal 2020. This has left the company in a vulnerable position, and now Exxon has little choice but to lower its debt levels which have recently hit record highs.
CEO Darren Woods, has reassured investors that reinstating buybacks is “on the table,” though he has reiterated that  “restoring the strength of our balance sheet, returning debt to levels consistent with a strong double-A rating” remains a top priority.
But overall, Exxon’s declining production is the way to go in this environment.
Energy finance analyst at IEEFA, Clark Williams-Derry,a non-profit organisation and Kathy Hipple, has told CNBC that there’s a “tremendous degree” of investor skepticism regarding the business models of oil and gas firms, thanks to the deepening climate crisis and the urgent need to pivot away from fossil fuels. Indeed, Williams-Derry says the market kind of likes it when oil companies shrink and aren’t going all out into new production but instead use the extra cash generated from improved commodity prices to pay down debt and reward investors.
Investors have been watching Exxon closely after the company lost three board seats to Engine No. 1, an activist hedge, in a stunning proxy campaign a few months ago. Engine No. 1 told the Financial Times that Exxon will need to cut fossil fuel production for the company to position itself for long-term success. “What we’re saying is, plan for a world where maybe the world doesn’t need your barrels,” Engine No.1 leader Charlie Penner told FT.
Better still, Exxon has been quickly ramping up production in the Permian, where it’s targeting a production clip of 1 million barrels per day at costs of as low as $15 per barrel, a level only seen in the giant oil fields of the Middle East. Exxon reported that production volumes in the Permian Basin jumped 34% Y/Y to 400K boe/day, and could hit its 1 million b/d target in less than five years.
After years of under performance amid weak earnings, the U.S. shale sector remains on track for one of its best years ever.
According to Rystad Energy, the U.S. shale industry is on course to set a significant milestone in 2021, with U.S. shale producers on track for a record-high hydrocarbon revenue of $195 billion before factoring in hedges in 2021 if WTI futures continue their strong run and average at $60 per barrel this year and natural gas and NGL prices remain steady. The previous record for pre-hedge revenues was $191 billion set in 2019.
Rystad Energy says that cash flows are likely to remain healthy due to another critical line item failing to keep up: Capital expenditure.
Shale drillers have a history of matching their capital spending to the strength of oil and gas prices. However, Big Oil is ditching the old playbook this time around.
Rystad says that whereas hydrocarbon sales, cash from operations, and EBITDA for tight oil producers are all likely to test new record highs if WTI averages at least $60 per barrel this year, capital expenditure will only see muted growth as many producers remain committed to maintaining operational discipline.
For years, ExxonMobil has been one of the most aggressive shale drillers with massive spending and capex. Luckily, the company is no longer too keen on maintaining that tag, which is bullish for the U.S. shale sector.
There are already growing fears that a full return of U.S. shale due to improved commodity prices could muddy the waters for everyone
According to an analysis by the authoritative Oxford Institute for Energy Studies, rising oil prices could allow for a significant return of US shale to the market in 2022, potentially upsetting the delicate re-balancing of the global oil market. 
“As we enter 2022, the US shale response becomes a major source of uncertainty amid an uneven recovery across shale plays and players alike. As in previous cycles, US shale will remain a key factor shaping market outcomes,” Institute Director Bassam Fattouh and analyst Andre as Economist have said.
Obviously, many investors would prefer that this happens later rather than sooner and so far, indications are that this is the most likely trajectory.

By:  Alex Kimani
Kimani writes for Oilprice.com

Continue Reading

Oil & Energy

Geregu Power’s Half-Year Profit Up 148% On Back Of Increased Enegry Sales

Published

on

Geregu Power turned in 148.5 per cent more in net profit for the first half of the year compared to the same period of last year.
The company’s position was impacted by increased income from energy sales and, to some extent, capacity charge – the company’s major revenue sources.
The feat could mean the synergy struck by the firm with Siemens earlier in the year towards capacity expansion is beginning to pay off The electricity provider, backed by Femi Otedola, who chairs the board of Nigeria’s oldest lender FBN Holdings, announced an agreement with the German multinational technology conglomerate in May to more than double its current nameplate capacity to 1,200 megawatts
That entails scaling up Gereru I, one of its top power plants, to 500mw from 435mw and building a 500mw-new power plant using lower emissions turbines.
“The establishment of a combined cycle operations to generate an additional 200mw,” is also being planned, Geregu Power said in a May statement.
Revenue for the period under review climbed to N80.7 billion, up by 32.5 per cent, according to its unaudited earnings report issued Friday.
One notable downside of the generally strong performance was impairment loss on financial assets, which accelerated more than threefold to N6 billion after long-due receivables from trade debtors surged by 220.3 per cent.
Profit before income tax rose to N30.2 billion from N12.3 billion a year earlier.
The stock has returned 150 per cent since the start of the year, outperforming the Nigerian Exchange’s main stock index, which has yielded 33 per cent.
It has also outpaced NGX 30, the index that tracks the thirty most capitalised and most liquid equities on the bourse, which has improved by more than 27 per cent.
The share price of Geregu Power has not moved since 4 March, stuck at N1000 per unit.

Continue Reading

Oil & Energy

NUPENG, PENGASSAN Demand Dangote Refinery Sabotage Probe

Published

on

The joint unions of the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) and Petroleum and Natural Gas and Senior Staff Association (PENGASSAN) have demanded an investigation into the alleged sabotage by International Oil Companies (IOCs) to undermine and destabilise the operations of Dangote Refinery and Petrochemicals.
The two associations made the call in Lagos via a letter to President Bola Tinubu jointly signed by the General-Secretary, NUPENG, Comrade Afolabi Olawale, and his PENGASSAN counterpart, Comrade Lumumba Okungbowa, and made available to journalists.
Consequently, the unions charged the Federal Government to take decisive action to safeguard Dangote Refinery and ensure its successful operation for the benefit of the country.
The unions noted that “protecting our National assets is our collective responsibility”, insisting among others that the findings of such investigation be made public to ensure transparency and maintain public trust.
Describing Dangote refinery as not only a critical National Asset, but also a beacon of hope for energy security, economic growth, and employment opportunities, the unions said the matter must not be allowed to end without thorough investigation.
The letter, written through the office of the Chief of Staff to the President, Femi Gbajabiamila, reads, “The leadership and members of our great Union and Association profoundly appreciate your commitment and dedication to restoring the economic growth and prosperity of our dear Nation, and we are also fully mobilised and committed to supporting all your laudable thoughts and hard decisions towards these lofty goals.
“Unfortunately, we are deeply concerned and shocked by the recent unusual allegations by the Dangote Refinery and Petrochemicals Company of a deliberate plot by some International Oil Companies (IOCs) to frustrate their business efforts and continued existence.
“These sabotaging actions reportedly include denying the Refinery crude oil supply and artificially inflating market prices of the crude oil to the Company, thereby forcing Dangote Refinery and Petrochemicals Company to source crude oil from other countries, even as far as the United States of America with attendant high operating costs and logistics.

By: Lady Godknows Ogbulu

Continue Reading

Oil & Energy

FG, Oil Producers Agree On Crude Supply To Local Refineries

Published

on

The Federal Govern
ment and Crude Oil Producers in Nigeria have agreed to work toward a sustainable supply of crude oil to local refineries under a market-determined pricing system.
The aim is to ensure that while the operators do business optimally, the refineries are not starved of feedstock.
The agreement, reached at a Virtual Meeting held with the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), and all the international oil companies (IOCs), was on the status review of the Framework for Seamless Operationalisation of Domestic Crude Oil Supply Obligation Template.
The producers, under the umbrella of the Oil Producers Trade Section (OPTS), agreed to concede to a framework that would be mutually beneficial, ensuring that local refineries are not strangulated due to off-the-curve prices.
Speaking with newsmen, Komolafe explained that contrary to a report that the decision was to placate certain interests, it was indeed targeted at ensuring energy security for the country.
“It is the job of the regulator to interface between the producers and the refiners; it is a delicate balance because we do not want one to overrun the other because that will lead to problem.
“If we don’t have product, then there will be energy gap in supplying the industry and this will not be a palatable situation for all, and if we have robust supply, but they shut down the upstream and we can’t get crude production, then there is also a problem. So, we, as regulator, are simply trying to maintain the delicate balance”, he said.

Continue Reading

Trending