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Permalink Reply by Skip Peel - Mineral Consultant on January 23, 2025 at 13:00

I expect the price for oil and gas to go up, not down for the reasons stated in the article.

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Permalink Reply by Skip Peel - Mineral Consultant on January 24, 2025 at 0:50

Lower Interest Rates Could Help Sector Finances But Unlikely to Boost Output, Spending

Thursday, 01/23/2025

Excerpt, link to full article:  https://rbnenergy.com/opportunities-lower-interest-rates-could-help...

The Federal Reserve cut interest rates three times last year, brightening the prospects for continued economic growth and increases in energy demand, and additional rate cuts could be coming in 2025. But what do lower borrowing costs really mean for E&Ps, midstream companies, refiners and others in the energy industry? In today’s RBN blog, we will examine the impact of lower interest rates on energy companies and whether they might affect plans to boost output and build new infrastructure.

We aren’t suggesting that the fairly limited interest rate reductions of 2024 will spur oil and gas companies to quickly dust off shelved projects. But if interest rates do move lower in 2025, the cumulative effect could open up more affordable borrowing options, potentially boosting industry spending. What might lower interest rates mean for the major sectors — upstream, midstream and downstream?

Just a few years ago, the upstream energy sector — namely oil and gas producers — was far more reliant on borrowing and debt than it is today. As we’ve discussed in many blogs during the COVID and post-pandemic eras, most recently in Writing’s on the Wall, most upstream companies have become intensely disciplined regarding their finances in recent years, so they aren’t likely to seek debt funding to outspend cash flow (see Dance With The One That Brought You). Generally speaking, they are now laser-focused on maximizing free cash flow, using that cash to fund their capital spending, pay down debt and return cash to shareholders via dividends and share buybacks. To expand production, oil explorers could opt to take on new loans or refinance existing loans that free up credit for fresh projects. For instance, major onshore and offshore E&P Murphy Oil was one of the first to refinance debt when the Fed slashed rates in September. E&Ps, like most companies, maintain some levels of short-, medium- and long-term debt — and surely may benefit from lower rates as their debt is refinanced — but leverage is modest.

We should also mention the frenzy of M&A activity over the last couple of years in the Permian Basin and elsewhere. As we’ve discussed in several blogs (see We Could Be So Good Together, Shake It Off Go Your Own Way and, most recently, U Can’t Touch This), there are several drivers behind the long list of E&P acquisitions, including the pursuit of greater scale, improved efficiency and higher shareholder returns. Buyers in the recent wave of industry consolidation have used debt to fund some acquisitions but the goal is primarily to increase cash flow to restore debt ratios to pre-purchase levels as soon as possible, not necessarily to finance new production or expand infrastructure. Also, note that post-merger investment levels are sometimes lower than the combined pre-acquisition spending of the two companies. As we noted in Something Good Coming, Expand Energy, which was formed by the October 2024 merger of Chesapeake Energy and Southwestern Energy, sees its 2025 capex falling by 10% to $2.7 billion, although it also expects natural gas production to climb.

To sum up, while a lower-interest-rate environment would help companies in the oil and gas industry to expand their businesses — such as we’re already seeing with midstream gas processing plants, LNG export facilities and natural gas pipelines in the Permian and Louisiana — upstream companies rely more on free cash flow than debt to finance their capital spending, midstreamers are increasingly focused on debt reduction and refiners may not be expanding as much. (Power developers are a different story.) But all that is not to say lower borrowing costs won’t help energy-industry players — they will, if only in reducing their refinancing costs. And lower interest rates also support economic growth and the view that inflation is under control — all good news for the industry.

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Permalink Reply by Skip Peel - Mineral Consultant on January 24, 2025 at 4:57

Trump's Alaska drilling push meets industry reluctance

President Donald Trump's push to boost oil and natural gas drilling in Alaska and the Arctic is unlikely to spark a rush of activity due to the high-risk nature of investment in the region, analysts said. American Petroleum Institute Senior Vice President of Policy Dustin Meyer explained that the lack of long-term regulatory certainty could deter companies from committing to new projects. Nevertheless, "[t]he administration deserves a lot of credit for at least doing everything that they can do to send the signal that these areas are going to be open for development," Meyer added.

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Permalink Reply by Skip Peel - Mineral Consultant on January 24, 2025 at 4:59

Trump reassures Europe on LNG supply

President Donald Trump has pledged to ensure reliable liquefied natural gas supplies to Europe and brushed off concerns about potential hikes in domestic gas prices. However, ExxonMobil Europe President Philippe Ducom cautioned that Europe's reluctance to sign long-term contracts and limited US LNG capacity until 2026 may jeopardize supply security and exacerbate energy costs for vulnerable industries.

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Permalink Reply by Skip Peel - Mineral Consultant on January 27, 2025 at 4:32

US, Canada energy leaders sound alarm over tariffs

US and Canada energy leaders are warning that proposed tariffs on Canadian exports would disrupt the deeply intertwined energy trade, putting jobs and decades of shared economic growth at risk. Tariffs would "directly undermine energy affordability and availability for consumers while eroding the US oil and natural gas industry's competitiveness both domestically and globally," the American Petroleum Institute wrote in a letter urging the Office of the US Trade Representative to exempt oil, gas and refined products.

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Permalink Reply by Skip Peel - Mineral Consultant on January 28, 2025 at 8:52

Wall Street will stymie Donald Trump’s US oil surge plan, say shale bosses

Output set to rise more slowly under new president than during Joe Biden’s term

Total US oil output in Trump’s second term will rise by less than 1.3mn barrels a day, said Rystad Energy and Wood Mackenzie, well below the 1.9mn b/d rise achieved under Joe Biden and much less than in the shale bonanza years in the previous decade.

https://www.ft.com/content/3f4c07ee-7a75-467d-9cc7-53e81c579874?utm...

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Permalink Reply by Skip Peel - Mineral Consultant on January 31, 2025 at 4:23

Hundreds of oil leases in the Gulf of Mexico sit idle. Why is Trump calling for more?

By: Tristan Baurick, Verite - January 30, 2025 1:43 pm

Despite President Donald Trump’s calls to “drill, baby, drill,” many oil companies operating in the Gulf of Mexico will likely do what they’ve done for years: sit on hundreds of untapped oil leases across millions of acres.

Trump has repeatedly said eliminating barriers to drilling will unlock vast untapped reserves of “liquid gold” and ignite a new era of national prosperity. But most of the drilling leases already granted to companies in the oil-rich Gulf are idle and unused, and they’ll stay that way until the U.S.’s record-breaking production rates wane and the high costs of drilling offshore drop precipitously.

Of the 2,206 active leases in the Gulf, only a fifth are producing oil, according to records from the Bureau of Ocean Energy Management, which regulates offshore drilling. Oil industry executives and analysts say the current number of 448 oil-producing leases is unlikely to grow significantly even if Trump makes good on promises to expand leasing opportunities and expedite drilling permits.

The market is saturated with oil, making companies reluctant to spend more money drilling because the added product will likely push prices down, cutting into profits.

“It’s not the regulations that are getting in the way, it’s the economics,” said Hugh Daigle, a professor of petroleum engineering at the University of Texas in Austin. “It’s true that there are a bunch of undeveloped leases in the Gulf, and it’ll stay that way if we continue to see low or stagnant oil prices.”

Global oil production is expected to grow more than demand over the next two years, likely forcing the price of crude to drop 8% in 2025 and another 11% next year, according to a January forecast from the U.S. Energy Information Administration (EIA).

The Gulf accounts for 97% of all offshore oil and gas production in the U.S. Nearly 12 million acres are under active leases in the Gulf, but only about 2.4 million acres are being used to produce oil and gas, according to BOEM data.

So, what’s the actual benefit of a quicker and easier regulatory process for companies that don’t appear to need more leases?

“It’s simple,” said Brett Hartl, the Center for Biological Diversity’s government affairs director. “The companies make more money when they have to spend less time and effort on permits and environmental regulations and mitigation.”

A host of environmental and worker safety rules enacted after the 2010 Deepwater Horizon oil disaster has made obtaining a lease and drilling permit a multi-year process. Companies must demonstrate their operations are prepared to deal with potential blowouts and worst-case-scenario discharges, and all drilling platform designs and materials must undergo certification by independent engineers.

It’s unclear how the Trump administration will change these and other offshore drilling rules. During Trump’s first term, his administration loosened requirements for offshore well designs, materials and monitoring technology. Former President Joe Biden reinstated most of these rules.

Oil companies cheered Trump’s recent calls for a more streamlined process and a series of energy-related executive orders he signed this month. The orders declared an “energy emergency,” expanded drilling in the Arctic and repealed Biden’s ban on drilling off the East and West coasts and parts of Alaska.

“Directing regulators to expand access to resources [and] streamline permitting processes … will help deliver a stronger, more prosperous energy future for all Americans,” Mike Sommers, president of the American Petroleum Institute, said in a statement last week. “This is a new day for American energy, and we applaud President Trump for moving swiftly to chart a new path where U.S. oil and natural gas are embraced, not restricted.”

But industry leaders have also been clear that these and other policy changes floated by Trump won’t lead to more drilling. The U.S. is already producing more crude oil than any country, ever, according to the EIA. Last year’s production rate of 13 million barrels per day was a new record high, surpassing the previous record set in 2023.

“I don’t think today that production in the U.S. is constrained,” ExxonMobil CEO Darren Woods told Semafor in November. “So, I don’t know that there’s an opportunity to unleash a lot of production in the near term, because most operators in the U.S. are [already] optimizing their production today.”

In essence, oil is just too cheap to justify more drilling. If prices do go up, companies are likely to tap into Permian Basin shale in Texas and New Mexico rather than seek offshore reserves, which cost more to drill, according to industry analysts.

But that doesn’t mean companies won’t snap up even more offshore leases if they’re offered, Daigle said.

“Some of these (leases) might be drilled in the future, but many are being held just so somebody else doesn’t lease them,” he said. Companies may also stockpile leases to raise funds from investors, or they may simply be playing “mind games” with competitors. Buying up leases in one area of the Gulf can sometimes throw rival drillers off the scent of richer deposits elsewhere, Daigle said.

Leases have been sold too quickly and cheaply in recent decades, according to a 2021 report by the U.S. Department of the Interior, which oversees BOEM. This fast and loose approach “shortchanges taxpayers” and encourages “speculators to purchase leases with the intent of waiting for increases in resource prices, adding assets to their balance sheets, or even reselling leases at profit rather than attempting to produce oil or gas,” the report said.

“More leases may make the companies look good, on paper, to investors,” said Tom Pelton, communications director for the Environmental Integrity Project, an environmental watchdog group. “But they won’t necessarily even produce more oil and gas. And they certainly will not be good for the climate or clean water.”

If Trump really wanted to slash energy prices for U.S. consumers, he wouldn’t have banned offshore wind leasing in federal waters or restarted permitting for new liquefied natural gas (LNG) export terminals, said Scott Eustis, the community science director for Healthy Gulf, a nonprofit environmental group.

Shipping LNG overseas contributes to higher electricity and natural gas prices in the U.S., according to a recent U.S. Department of Energy report.

“LNG exports make everybody’s energy cost more because we’re giving it to China and not using it domestically,” Eustis said.

Beyond the economics, giving companies an easier route to secure leases and permits does little more than put the Gulf at risk of another Deepwater Horizon-scale disaster, Hertl said.

“The only result we’ll have is more risky drilling,” he said. “And then the question is not ‘if’ but ‘when’ we’ll have the next catastrophic spill in the Gulf.”

 

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Permalink Reply by Skip Peel - Mineral Consultant on February 3, 2025 at 4:45

EIA: Drops in Texas, N.M. lower US oil production in Nov.

The Energy Information Administration has reported a 122,000-barrel-per-day drop in US crude oil production in November, to 13.31 million bpd from a record 13.44 million bpd in October, as declines in Texas and New Mexico surpassed a 3.5% increase in North Dakota. In contrast, gross natural gas output climbed by roughly 0.2% to 115.8 Bcf/d.

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Permalink Reply by Skip Peel - Mineral Consultant on February 4, 2025 at 8:12

Starting to get the picture?

U.S. Frackers and Saudi Officials Tell Trump They Won’t Drill More

President says lower prices will solve many of the country’s problems but finds early resistance in the oil market

By Collin Eaton, Benoit Faucon and Benoît Morenne

Feb. 3, 2025 wsj.com

President Trump wants to boost oil drilling. His allies in the U.S. shale industry and Saudi Arabia are pushing back.

Trump for months has encouraged the U.S. shale industry to “drill, baby drill,” but another American oil boom isn’t in the cards soon, no matter how many regulations are rolled back, according to oil executives. After many producers overdrilled themselves into bankruptcy during the shale boom’s heyday, the industry is now focused on keeping costs down and returning cash to investors.

The president’s advisers concede that U.S. frackers won’t pump much more, according to people familiar with the matter. The advisers say his best lever to bring down prices might be to persuade the Organization of the Petroleum Exporting Countries and Saudi Arabia, the group’s de facto leader, to add more barrels to the market.

But Saudi Arabia has told former U.S. officials that it also is unwilling to augment global oil supplies, say people familiar with the matter. Some of those former officials have shared the message with Trump’s team.

The president believes a fresh tidal wave of oil would solve many of his problems: It could quell inflation and pave the way for interest-rate cuts. It could also strengthen his hand in coming confrontations with petrostates Russia and Iran. 

In a January speech, Trump said he planned to ask Saudi Arabia and other OPEC members to bring down oil prices. The president is planning to visit the kingdom in one of his first foreign trips of his second term, and he is expected to push for higher Saudi oil production in person.

Trump’s fixation on oil prices is vexing to some in the industry. Currently around $73 a barrel, prices are relatively low compared with 2022, when they averaged over $94 a barrel and the national average gasoline price hit a record over $5 a gallon. Gasoline prices are averaging $3.10. The president has declared a national “energy emergency” and vowed to cut Americans’ overall energy costs in half.

Keith Kellogg, Trump’s special envoy to Ukraine and Russia, has said global producers should try slashing oil prices to $45 a barrel, to pressure Russia into ending the war with Ukraine.  

Such prices could be disastrous for U.S. frackers and Saudi Arabia—Trump’s two most powerful friends in the global oil market. The last time prices sank below $45, during the pandemic in 2020, it prompted a painful war for market share between Saudi Arabia and Russia and pushed dozens of shale drillers into bankruptcy.

At lower oil prices, Saudi Arabia would struggle to generate enough revenue to pay for social services, monthly payments to citizens and big infrastructure projects. It will need about $90 a barrel this year to balance its budget, according to the International Monetary Fund.

There is a clash coming between Trump and Saudi Arabia over oil prices, one of the former U.S. officials said. 

Trump’s advisers have told some oil-and-gas donors they understand the president can’t rely on U.S. frackers to boost production in the short term, people familiar with the discussions said. 

“Companies are no longer pursuing growth at all costs,” said Kaes Van’t Hof, president of West Texas oil producer Diamondback Energy. “Shale is in a much different phase of its life cycle.” 

Longer term, the advisers say Trump’s support of U.S. oil and gas—including by scrapping environmental regulations—will make the sector more appealing to investors. That, in turn, would lead to more capital flowing into the industry and eventually increase output. Making it easier to build pipelines and other infrastructure could also increase fossil-fuel demand, potentially spurring drilling, the advisers say.

Aspirations to marginally boost U.S. output over time aren’t completely unrealistic, said Ed Crooks, vice chairman, Americas, at energy consulting firm Wood Mackenzie. It depends on whether the administration is able to improve the economics of production, but it could take years and would pale in comparison to shale’s boom years. 

Among Trump’s early regulatory changes, “we don’t see anything that will make a colossal difference to the economics of production,” Crooks said. 

Oil executives said they expect U.S. production, which is already at record levels, to grow modestly this year, unless prices surge. The Energy Department projects domestic output will rise about 2% to about 13.7 million barrels a day by December, and then stay relatively flat in 2026. 

That level of production would do little to sate Trump’s immediate appetite for a gusher of oil. It might also hamper his ability to slap oil and gas sanctions on Russia or Iran, measures that would likely lead to fewer barrels on the market and an increase in oil prices, undermining Trump’s promise to voters.

Before the inauguration, Trump’s transition team told people that he intended to go to Saudi Arabia to secure assurances they would step in to fill the gap if he ramps up pressure on Iran. Trump’s team has estimated Iran’s exports could be reduced by 500,000 to 750,000 barrels a day from sanctions under consideration, according to people familiar with the matter.

The sanctions discussed if Iran doesn’t curb its nuclear program include targeting Chinese ports that import Iran’s oil, Iraqi oil deals with Iran and other places used to facilitate the transfer of Iranian oil.

Two former U.S. officials were told the kingdom would be reluctant to rush to boost production because they were weary of a repeat of the 2019 oversupply.

That year, the Trump administration asked the kingdom to anticipate the return of the Iran embargo by opening up the spigots. But Trump surprised the Saudis by allowing exemptions for some Iranian oil buyers in Asia—leading to an oil glut and lower prices.

Another factor is that the Saudis say privately they need Russia’s involvement in OPEC+—an alliance between the cartel and other producers, including Russia—to prop up prices.

The Saudi government is also giving priority to peaceful relations with Iran, an about-face from their adversarial attitude back in 2018. Back then, the Saudis opposed the nuclear agreement and backed sanctions. Now, the kingdom wants to be part of nuclear negotiations rather than lobbying against them, Saudi officials say.

 

Permalink Reply by Skip Peel - Mineral Consultant 5 hours ago

Trump’s oil ambitions face harsh economic and geologic realities

By Mike Soraghan | 02/18/2025 | eenews.net

The president is calling for energy dominance, but aging shale plays aren’t positioned to deliver a surge of new oil production.

President Donald Trump wants to “unleash” American energy. The problem: U.S. oil production growth is starting to dwindle.

The nation’s once-hot shale plays are maturing. It’s getting more expensive to get significant amounts of new oil out of the ground. Some observers expect production to level off in the coming years and then start to decline by the early 2030s.

Soon enough, oil companies may need to “drill, baby, drill” just to keep up current production levels rather than boosting them. Trump is calling for “energy dominance,” yet for many in the oil patch the debate is not whether U.S. oil production is hitting its peak, but when and how fast.

“We’re 17, 18 years into the U.S. shale story,” said Brandon Myers, head of research at Novi Labs, an Austin, Texas-based research firm that uses artificial intelligence to analyze the economics of wells. “It does have an end.”

Right now, the U.S. oil industry is producing more crude than ever before — north of 13 million barrels a day — and the price of gasoline is slightly higher than $3 a gallon, hovering near a three-year low. So it may be hard to realize the type of production increases Trump suggested on the campaign trail, where he boasted that within 18 months he’d cut energy prices in half.

“That presumes that you can press a button and get even more out of those rocks than ever for an extended period of time,” said Barry Rabe, a professor emeritus of environmental policy at the University of Michigan. Pulling that off, he said, is “sort of a triple bank shot.”

The White House didn’t respond to a request for comment from POLITICO’s E&E News.

Nationally, oil production might creep up in the next couple of years, driven by drilling in West Texas and eastern New Mexico. But other once-booming plays in places like Colorado, South Texas and North Dakota are flat or declining.

Barring a big technological revolution in drilling — some suggest leaps in AI might deliver one — the United States’ position as an oil powerhouse could be challenged in the years ahead.

Some analysts say it will be 10 years or more before production starts to plateau. Others say it has already started. For its part, the U.S. Energy Information Administration predicted last week that the country’s oil production will grow a little more than 3 percent in 2025 to 13.7 million barrels a day, but then climb less than 1 percent in 2026. The report reversed a previous forecast that production would drop slightly in 2026.

EIA’s outlook last week also suggested that Trump’s price-cutting goal might be tough to achieve. The agency projected oil prices dropping by 2026 because of reduced demand and increased foreign production, but by only about 20 percent, compared to 2024. EIA projected natural gas prices could nearly double in the same time frame.

Shifts in the industry have already been driving change in the board rooms of oil and gas companies, said Jennifer Miskimins, professor and head of the Petroleum Engineering Department at the Colorado School of Mines.

“A lot of the mergers of companies have been because they’re buying inventory, so they have places to go outside of what they currently have,” she said.

Decades of gas

Natural gas, however, is not seeing the same trend. The lower-quality wells that companies are drilling have more gas coming up with the oil, to the point that gas is sometimes valued below zero. And there are vast stores of gas still available to be tapped. Gas production is limited less by geology than the availability of pipelines to pump it to market.

The country, Myers said, has “decades, decades and decades” of gas supply left.

The United States burst onto the global oil and gas production scene in the 2010s after years of fretting about its dependence on foreign oil.

A suite of technologies lumped together as hydraulic fracturing — or fracking — opened up vast reserves of natural gas in shale formations all around the country. Geologists had long known there was oil and gas in the shale rock. But the petroleum wasn’t worth the effort until companies perfected advances in cracking open the dense formations with high-volume fracking and sideways drilling.

The ensuing wave of drilling for oil and gas turned formerly sleepy communities like Williston, North Dakota, into boomtowns; revived the oil industry in West Texas; and created huge profits for oil and gas companies in Houston and elsewhere.

It also pushed down natural gas prices for utilities and their customers, and cushioned drivers from gasoline price shocks when conflict and catastrophes rocked petrostates. In time, the shale business shifted the United States from one of the biggest importers of oil to being the world’s largest producer of crude oil.

Trump and the authors of the Project 2025 report, written as a guide for a conservative administration, have been accusing the Biden administration of waging a war on domestic oil production. If so, Biden wasn’t winning. As he left office, oil companies were raking in robust profits and the country was producing more oil than any country in the history of the world.

Instead, it is the rocks themselves that now stand in the way of increased oil production.

Contrary to what Trump said in his inaugural address, the U.S. doesn’t have “the largest amount of oil and gas of any country on Earth.” It may be producing more oil than any other country, but it’s pulling it from reserves about a third the size of Saudi Arabia’s.

After years of drilling, the top-quality U.S. wells that produce the most oil for the least money are increasingly hard to find. More and more, producers are left to weigh the economics of second- and third-tier wells.

‘On a treadmill’

The exception to the trend of diminishing shale plays is the Permian Basin in southeast New Mexico and West Texas. It’s been driving U.S. production growth for several years. But even there the rate of growth is already slowing.

“You’re on a treadmill where all the existing wells are declining,” said Mukul Sharma, professor of petroleum engineering at the University of Texas at Austin. “And you’re trying to catch up with doing new drilling or doing playing new tricks with old wells, and that’s usually a losing battle.”

Still, Sharma’s take is that the country has a decade or more before production levels decline. And Stephen Sonnenberg, a petroleum geology professor at the Colorado School of Mines, finds the reports of national decline in some quarters to be exaggerated.

“Production is not significantly growing,” Sonnenberg said, “but it’s not going down.”

The U.S. oil industry has been down many times before, he said, but has always managed to fight its way back. He expects new innovations will help the domestic oil industry find more efficient ways to produce.

Mike Sommers, CEO of the American Petroleum Institute, the oil industry’s largest trade group, points to advances in AI.

“I believe AI could be the next big fracking revolution,” Sommers told reporters last month. AI, though, is also producing some of the predictions of decline.

Meanwhile, Sommers said, the maturing shale plays show the need to make federal permits easier to get, which means cutting environmental regulations. And he said companies need to be able to keep searching for more places to drill, particularly in Alaska and the offshore areas the Biden administration put off-limits shortly before leaving office.

The API did not respond to a request for comment from E&E News. But the points that Sommers outlined last month dovetail with Trump’s “energy dominance” agenda.

“Where is the energy we’re going to need going to come from?” Sommers asked at a panel discussion in Washington. “We need to be focusing on developing new places.”

The energy the country needs to make up for the decline in shale plays should come from cleaner sources of energy such as wind and solar, said Tyson Slocum, director of the energy program at consumer advocacy group Public Citizen. He said Alaska and offshore projects won’t produce enough energy to keep up as current oil developments decline.

“Now would be a good time to start really focusing on transitioning us from fossil fuels,” he said in an interview.

Trump dismisses the idea of climate change and an energy transition. He also scoffs at the idea that oil companies won’t want to drill their way to lower prices.

“I’ll get those guys drilling,” he told supporters in Greenville, North Carolina, in November. “If they drill themselves out of business, I don’t give a damn.”

Reporter Carlos Anchondo contributed.

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