Hedging gains reversed for many producers in 2021 as oil prices stabilize

An average of 1.5 million bbl/d were hedged by North American oil producers heading into 2021 in fixed swaps, collars and three-way collars, according to a new Evaluate Energy report on hedging activity and the extent to which companies gained or lost out as per-barrel values stabilised.

“This time last year, it was upstream hedging strategies – particularly longer-term derivatives in place at the end of 2019 – that protected certain North American oil producers,” said Mark Young, report co-author and senior analyst at Evaluate Energy.

“Hedging provided a much-needed glimmer of positivity for North America’s oil producing industry last year. More than $7 billion was raised in realized hedging gains from settled derivatives in 2020 by the companies we analysed. This translates to a 11% boost in E&P revenues for the group over the entire year.

“Based on more recent hedging data, to say the picture has altered in early 2021 feels like a dramatic understatement. Focus has shifted to producers that have hedged to the point where they are missing out on gains from early 2021 price increases.

“It is hard to criticise any producer that was more cautious when it came to hedging heading into the new year. Instead of gambling on exposure to fluctuating oil prices, the chaos of last year plainly made it a priority for many producers to lock in oil volumes even at new lower market prices via hedging. This provides greater certainty and stability around cash flow for internal budgeting processes.”

A total of 72 producers were analysed by Evaluate Energy.

Among the report findings:

  • Certain producers missed out on large short-term gains in early 2021 as oil prices rose significantly;
  • Oil volumes hedged by these producers fell by just over 400,000 bbl/d overall, but volumes covered by traditional fixed swap and collar derivatives increased over pre-pandemic levels; and
  • Many likely lost out by holding more complex three-way collars in 2020 compared to other derivative types; these types of hedging positions have been significantly cut in 2021.

 

Producers projecting largest 2021 capex growth: Oilsands companies prominent

Three Canadian oilsands operators are prominent among larger producers in North America projecting the greatest percentage rise in capital spending in 2021.

Among producers whose daily output exceeds 100,000 boe/d, Cenovus Energy Inc. tops the pile. It plans to almost triple capex spending from C$841 million last year to around C$2.4 billion in 2021. Imperial Oil and Canadian Natural Resources also rank highly with projected increases of 37% and 20%, respectively, based on new Daily Oil Bulletin guidance data.

Sign up for a free DOB trial to gain access to the weekly reports at this link.

The data compares current 2021 budget plans with reported 2020 capital spending based on company annual results compiled within the Evaluate Energy database.

Cenovus’ increase of nearly C$1.7 billion is also the largest increase on a pure dollar level expected in 2021 based on currently available budgets for senior North American producers. Pioneer Natural Resources and ConocoPhillips were the next highest ranked on this metric, with planned increases of around $965 million and $785 million, respectively.

Canada’s other +100,000 boe/d oilsands player Suncor Energy also projects an increase of 9% (~C$355 million) based on its 2021 budget of C$4.15 billion.

The DOB releases updated reports holding all 2021 production, drilling and capital budgets for every North American producer every week.

 

The report is built using data from the Evaluate Energy guidance product.

 

Solar deals up in U.S., Europe, Asia Pacific in 2020, early 2021

Solar power deal making in North American and European markets saw a major uptick in 2020 and early 2021 thanks to growing demand for stakes in future generation capacity.

Click here for detail on these deals on a country-by-country basis.

“We examined deals between the start of January last year up to and including February 15 this year, and the North American uptick compared to 2019 is almost entirely down to acquisitions of future capacity in the U.S., so projects that are not yet online and generating power,” said Eoin Coyne, Senior M&A Analyst at Evaluate Energy.

“As the energy transition continues to pick up steam around the world, gaining access to a growing U.S. solar power generation space has clearly become a priority over the past 12-15 months or so for investors.”

36 GW of the 42 GW (86%) of solar power generation capacity involved in U.S. deals since the start of 2020 was for future planned capacity. More on recent U.S. solar deal making in recent years can be found in this free Excel download.

“Europe’s increase was driven by major increases in capacity changing hands in Spain, while the smaller but no less significant increases in activity seen in the Asia Pacific and Central Asian regions were caused primarily by upticks in capacity being dealt for in Japan and India, respectively.”

Details on Spanish, Japanese and Indian solar power deals since 2018 are included in our latest Top 10 dataset, which ranks all countries based on solar sector deal count between January 1, 2020 and February 15, 2021. Canadian data is also included. The data shows the capacity that changed hands in 2018, 2019 and the 2020-2021 period discussed above, as well as the future and existing generation capacity breakdown for 2020-2021.

 

Wind power deals soar on demand for future generation capacity

Wind power deal making in European and Asia Pacific markets saw a major uptick in 2020 and early 2021 thanks to growing demand for stakes in future generation capacity.

Click here for detail on these deals on a country-by-country basis.

“We examined deals between the start of January last year up to and including February 15 this year, and the European uptick compared to 2019 is significant with deals in France and Poland particularly notable,” said Eoin Coyne, Senior M&A Analyst at Evaluate Energy. “Capacity included in wind power deals doubled over 2019 levels in 2020 and early 2021 in both countries.

“Deals in Australia were responsible for over 60% of the huge uptick we saw in the Asia Pacific region, with 11GW in power capacity changing hands in 2020/2021 compared to just 2.4GW in 2019. Japan also saw four deals involving a total of 3.3GW in 2020/2021 after no wind deals were agreed in 2019.”

Details on French, Polish and Australian wind power deals since 2018 are included in our latest Top 10 dataset, which ranks all countries based on wind sector deal count between January 1, 2020 and February 15, 2021. Download the data here.

“The data also shows that the majority of the deals in both regions are for projects in progress or under construction – therefore future capacity, rather than existing facilities that are generating power right now,” added Coyne.

“With new and bolder climate targets being set all the time by nations and corporations around the world, being part of the wind sector’s growth is an attractive prospect for acquirers and investors alike.”

To download data on the 10 most active countries by wind sector deal count, click here. The data includes details on the capacity that changed hands in 2018, 2019 and the 2020-2021 period discussed above, as well as the future and existing generation capacity breakdown for 2020-2021.

Green power M&A: 48 GW of solar capacity changes hands

New data from Evaluate Energy shows that 48 GW in existing and future solar power generation capacity has changed hands in 271 M&A transactions around the world in 2020. Both figures are significant upticks on 2018 and 2019 activity in the sector.

The top 10 solar deals between January 1, 2020 and Feb 15, 2021 can be downloaded for free at this link.

“Much like we saw with the wind sector deals last week, the majority of the deals are for projects in progress and future capacity, rather than existing projects generating power right now,” says Eoin Coyne, Senior M&A Analyst at Evaluate Energy.

“Being part of the solar sector’s growth is clearly an attractive proposition for investors right now, what with new and bolder climate targets being set all the time by nations and corporations around the world.

“Even with the pandemic taking hold last year, major upticks were seen in deal counts especially for solar sector deals and a further 14 GW in solar generation capacity was dealt for in 2020 compared to 2019.

“This all stands in stark contrast to oil and gas markets, where, as our recent analysis showed, the pandemic was responsible for a sharp downturn in activity across the board.”

As for 2021 activity so far, Evaluate Energy data shows that solar sector deal counts are currently on pace to overtake 2020 figures very quickly, with 56 deals agreed up to and including February 15.

This count includes two major deals in the U.S. for 10 GW and 8 GW in future capacity, respectively.

These two deals rank as the two largest deals by generation capacity acquired in our top 10 solar sector deals between January 1, 2020 and February 15, 2021. More on these 10 deals is available for free download at this link.

This analysis was created using the Evaluate Energy M&A database, which began including green power and renewable energy sector transactions in 2016. Find out more here.

Green power M&A: 74 GW of wind capacity changes hands

New data from Evaluate Energy shows that 74 GW in existing and future wind power generation capacity has changed hands in 222 M&A transactions around the world in 2020. Both figures are significant upticks on 2018 and 2019 activity in the sector.

The top 10 wind deals between January 1, 2020 and Feb 15, 2021 can be downloaded for free at this link.

“The majority of the deals are for projects in progress and future capacity, rather than existing projects generating power right now,” says Eoin Coyne, Senior M&A Analyst at Evaluate Energy.

“With new and bolder climate targets being set all the time by nations and corporations around the world, being part of the wind sector’s growth is clearly an attractive prospect for acquirers and investors alike right now.

“A clear appetite is growing for the wind sector, with upticks in deal counts and the power generation capacity involved in M&A deals growing year-over-year between 2018 and the end of 2020, even with the pandemic taking hold last year.

“This wind sector’s deal activity over the past year stands in stark contrast to oil and gas markets, where, as our recent analysis showed, the pandemic was responsible for a sharp downturn in activity across the board.”

As for 2021 activity so far, Evaluate Energy data shows that wind sector deal counts are currently on pace to match 2020 figures at this very early stage. The deals have so far been for typically smaller assets, however, with just 1.75 GW acquired up to and including February 15.

The top 10 wind sector deals ranked on generation capacity between January 1, 2020 and February 15, 2021 were responsible for 44% of the total capacity acquired over the same timeframe. Details on these deals is available for free download at this link.

This analysis was created using the Evaluate Energy M&A database, which began including green power and renewable energy sector transactions in 2016. Find out more here.

MEG Energy delivers top Q3 netback among oil-weighted producers in North America

New data from Evaluate Energy shows that MEG Energy’s oilsands operations generate the highest overall operating netback per barrel among North America’s most heavily oil-weighted producers.

This analysis was conducted using publicly listed producers in Canada and the United States.

Data on the Top 5 netbacks recorded by oil-heavy and natural gas-heavy producers in Q3 2020 is available here.

“MEG ranks highly in the group because it only produces oil. It has no lower-margin natural gas sales weighing down its revenues, much like most of the companies here in the top 5 oil producers,” said Mark Young, Senior Analyst at Evaluate Energy.

“At just $2/boe back from MEG in Q3 netbacks, one could argue that Pioneer has the ‘best’ netback of the group, as it is only 80% weighted towards oil production,” Young continued. “Every other company in the top 5 oil producers is weighted at least 89% towards oil.”

To download the data, click here.

On the gas-heavy side, it was a similar story.

Three Canadians ranked highly, with netbacks of almost $9.00/boe recorded by Birchcliff Energy, Tourmaline Oil and ARC Resources, but it was one of the American contingent here that stands out.

“Comstock Resources’ $7.46 operating netback per boe is extremely noteworthy from the gas producers,” he said. “The other high ranking gas producers all had a portfolio made up of over 20% oil and liquids in Q3, while Comstock is almost exclusively (98%) a natural gas producer which would limit its revenues per boe relative to the rest of the group.”

Comstock’s low production costs played a large role in generating the relatively high netback. For more on these costs, read our article from last week via the Daily Oil Bulletin.

2020 Upstream Deals Reach “Almost Unthinkable” Total of $93 billion

Evaluate Energy’s new M&A report shows that $93 billion in upstream oil and gas deals were agreed in 2020, with the bulk of the sum found in low-premium corporate mergers in North America agreed in the latter period of the year.

The full report, which looks at all major deals and investment trends across a remarkably turbulent year for the oil and gas industry, is available for free download at this link.

Total 2020 deal values dropped 48% on the $180 billion secured in 2019 – making it the lowest annual spend since 2015. What may be more surprising is that it got as high as $93 billion by year’s end.

“While it is easy to focus on the relatively low value and equally low deal counts, getting anywhere approaching a total of $100 billion seemed almost unthinkable in the early stages of the pandemic,” said report author Eoin Coyne, Senior M&A Analyst at Evaluate Energy.

“Take Q2 for instance; when demand was being destroyed and oil temporarily traded at a negative value, the deal total for that three-month stretch stood at just $4 billion.”

This year’s annual upstream M&A review from Evaluate Energy analyses the major deals from 2020, including:

  • Acquisitions by Chevron, ConocoPhillips and Devon Energy in the U.S.
  • The major Canadian oilsands deal that saw Cenovus Energy merge with Husky Energy
  • A multi-billion reverse-takeover arrangement in the U.K. North Sea
  • The recent asset sale in West Africa by France’s Total

 

U.S. and Canada dominate upstream sector deals in Q4 2020

Deals in the United States and Canada were responsible for around 84% of the $93 billion in upstream deals agreed worldwide in Q4 2020, according to the latest data from Evaluate Energy.

A list of the top 10 countries, ranked by value of Q4 E&P deal activity, and details on the largest deal to be agreed last quarter in each country, is available for free download at this link.

For our full review of all 2020 M&A activity, download Evaluate Energy’s latest M&A report at this link.

“Canada made up 25% of all North American deals thanks primarily to the major oilsands merger of Cenovus Energy and Husky Energy and a handful of lower-value corporate acquisitions by Whitecap Resources and Tourmaline Oil,” said Eoin Coyne, Senior M&A Analyst at Evaluate Energy. “This was the first time Canada accounted for more than 20% of both North American deal totals and global deal totals since Q2 2018.”

The United Kingdom, thanks almost entirely to a reverse takeover agreement that will see Chrysaor Holdings merge with Premier Oil Plc, was the only other country to see over $1 billion in new deals agreed. Colombia, Egypt, Israel and Russia also made the top 10 list.

The full top 10 ranking is available for download at this link. The data shows the total value of all upstream deals agreed in the top 10 countries. The top individual deal for each country is also included.

Evaluate Energy is headquartered in London and specializes in global oil, gas and renewable energy intelligence.

Q4 upstream deals reach US$43 billion – but don’t let the numbers fool you

Five multi-billion-dollar deals made Q4 2020 one of the highest value quarters for upstream M&A in recent memory, totaling US$43 billion based on new research from Evaluate Energy.

ConocoPhillips, Pioneer Natural Resources and Diamondback Energy all made huge moves towards the end of a year of turmoil for oil and gas. Recent pricing stability and indications of increased capital expenditure in 2021 are providing some relief for embattled producers and suppliers.

The full Q4 M&A deals list is in Excel format for free download

Our M&A report for the full year 2020 is available for download now too.

“Deal activity had begun to pick up in Q3, especially in North America, having dried up almost entirely after March in the upstream sector,” said Eoin Coyne, Senior M&A Analyst at Evaluate Energy in London. “That late Q3 period saw a series of friendly, low-premium mergers agreed. This trend continued strongly in Q4 to boost overall industry spending.”

The fourth quarter saw the largest Canadian deal of the year agreed: Cenovus Energy’s merger with fellow oilsands producer Husky Energy.

“The quarter saw $43 billion in new E&P deals around the world,” added Coyne. “At first blush this looks like a major uptick in activity, even going back a few years. The top 10 deals, however, made up 88% of the total quarter value by themselves, meaning that Q4 only really saw an uptick in spending, rather than deal-making activity in general.”

The full list of top 10 deals includes data on acquisition costs and how much equity, if any, was included in agreed payment structures. The data also shows how much production was involved in each deal. Download it here.

Evaluate Energy is headquartered in London and specializes in global oil, gas and renewable energy intelligence. It is a sister brand of the Daily Oil Bulletin.