Author: Mark Young

Major Hedging Profile Changes Expected in Upstream Q1 Results Season

The sudden, dramatic fall in oil prices has forced many oil producers to adjust every aspect of their 2020 plans. Capital spending has been slashed while some acquisition or divestment plans have been put on hold.

Hedging strategies are also under the microscope – understandably so, as some producers will be far better protected than others.

Despite having released full details of year-end hedging positions just a few short weeks ago in annual results notices, a number of producers this week sought to reassure their stakeholders. They did so by announcing a new, updated version of their portfolio because oil prices have fallen so far, so quickly.

The details from three such companies can be found in the following announcements:

Towards the end of this month, companies will begin to release Q1 2020 results, and hedging positions for the industry at large will be made public. From this data, Evaluate Energy’s hedging database will be able to provide users, on a contract-by-contract basis, with a full picture of:

  • How far the world’s upstream producers have had to alter their hedging strategies since the end of last year.
  • How well companies are protected should the oil price stay low
  • How well some companies have managed to negotiate new positions to lock in revenue for the rest of 2020 and beyond.

For more on the data available in Evaluate Energy’s hedging database, click here.

For a free, no-obligation demonstration of the product, click here.


Capex Budget Cuts Continue with European Majors

Equinor, OMV and Eni joined the ranks of the world’s major producers this week to announce a cut in their capital spending budgets for 2020, in the wake of the oil price crash and the COVID-19 pandemic.

These European producers, according to Evaluate Energy guidance data, are joining a host of North American majors that have enacted similar budget cut plans for the coming year.

  • Norway’s Equinor is cutting over $3 billion from its 2020 plans. $2.4 billion of this is related to capex, representing a 20% cut from original plans, while $700 million is also being cut from planned operating expenses.
  • Austria’s OMV is now planning a €500 million reduction (20%) in capital spending and a further reduction of €200 million in opex cuts. The company also announced postponements of around €1.5 billion in new projects to 2022.
  • Italy’s Eni is cutting €2 billion (25%) off its 2020 capex plans and is set to reduce opex by €400 million. The company is also planning to cut €2.5-€3 billion off its 2021 plans.

Below these have been combined with some selected budget cuts announced this month by major U.S. upstream players.

Source: Company press releases, Evaluate Energy Guidance.

Evaluate Energy’s guidance tool is vital for keeping up to date with every North American budget cut or guidance announcement, find out more here.

These cuts are all, of course, in the wake of the oil price crash destroying margins worldwide and demand for oil taking a similar nosedive in the wake of COVID-19, what with latest figures suggesting that a quarter of the world’s population is now on lockdown and/or working from home. IEA is expecting global oil demand is expected to fall year-on-year, which would be the first time this had happened since 2009.

Clearly the upstream industry is facing major challenges and identifying the companies most likely to ride out the storm is vital for investors.

Evaluate Energy’s hedging database works hand in hand with our robust financial and operating database and our guidance product to help you pinpoint those companies that are best protected against this recent onslaught of outside market pressures.

NOTE (April 1, 2020): After this article was posted, BP also announced budget adjustments in response to the COVID-19 crisis. For more on BP’s 25% reduction in spending plans for next year, BP’s full press release can be seen here.

Canada’s Largest Hedgers for Q2 2020 Look to Ride Out Low Price Environment

Latest hedging data from CanOils shows that among Canada’s largest oil producing companies, it is actually a number of gas-heavy companies that have protected their oil production against the falling oil price the best heading into Q2 2020.

This analysis was conducted using hedging contract data available in annual reports of 33 Canadian-listed companies.

  • Of the group, we looked at those that produced at an average of over 10,000 bbl/d of oil in 2019 and the proportion of these companies’ oil volumes that were hedged for the Q2 2020 period.
  • As we were mainly analyzing the impact of falling oil prices due to market share war between Russia and Saudi Arabia, and not widening differentials between WTI and Canadian crude due to Canadian market dynamics and capacity constraints, we deliberately limited our analysis to include only fixed swap , collar and three-way collar contracts for oil.
  • All other contract types are available in the CanOils hedging module but have been excluded here.

Comparing volumes that were hedged under fixed swaps, collars and three-way collars as of December 31, 2019 for the second quarter of 2020 by these companies, it was three gas-weighted producers in Ovintiv Inc. , ARC Resources Ltd. and NuVista Energy Ltd. that enter Q2 2020 with the largest portion of their oil production portfolio hedged under a swap, collar or three-way collar contract.

Top 5 Oil Hedgers for Q2 2020 based on volumes hedged as of Dec 31, 2019

Source: CanOils

Using CanOils data, it is also possible to study the other extreme of the spectrum. By analyzing CanOils debt levels and credit facility utilization data in combination with hedging strategies, it is possible to identify the companies that may be in a more challenging position through these uncertain times.

For more on CanOils Hedging, please click here.

For a more global look on the companies best protected against this recent crash in prices, visit Evaluate Energy, where the hedging product includes U.S. and international operators alongside these Canadian producers.

This article was originally published on JWN Energy, where you can find a sample of the CanOils hedging data, showing Athabasca Oil Corp.’s 2020 positions, on a contract-by-contract basis.

U.S. Deals Dominate Global M&A in 2019

Data available in the latest upstream M&A report from Evaluate Energy shows that 2019 was another year dominated by deals for assets in the United States.

While 2019 was also a big year for deals in Latin America, Africa and Europe, 49% of the world’s $176 billion total of new upstream deals agreed revolved around deals for U.S. assets.

Evaluate Energy’s report can be downloaded at this link .

The U.S. total value of $85.9 billion (excluding $8.8 billion of Occidental Petroleum’s Anadarko purchase that was related to African assets) was the highest deal total for the country since the price downturn in 2014.

Source: Evaluate Energy, 2019 Global Upstream M&A Review

Keeping up recent trends, the Permian Basin was a key factor in this year’s total, with six individual +$1 billion deals taking place including Occidental’s Anadarko deal. There were also major deals in Alaska, the Haynesville shale and the Gulf of Mexico.

For more on these major U.S. deals to be agreed in the upstream sector last year, download Evaluate Energy’s report at this link .

Also included in the report:

  • Analysis on how far a stable oil price impacted deal activity
  • A focus on Latin American deals, including Total’s $5.1 billion deal in Suriname and major licensing activity in Brazil
  • Details on European maturing assets worldwide being sold off to private companies
  • A comparison of global Q4 2019 activity to every quarter since the start of 2013

EIA: Oil company finding costs reached a 10-year low in 2018

The U.S. Energy Information Administration (EIA) has used Evaluate Energy data to show that the finding costs for 116 global exploration and production companies hit a 10-year low in 2018, while finding and lifting costs combined were similar to costs recorded in 2017.

This was just one conclusion in the EIA’s oil and gas annual financial review, which is all built using data available through an Evaluate Energy subscription.

Among it’s other key findings:

  • Brent crude oil daily average prices were $71.69 per barrel in 2018, which was 35% higher than 2017 levels
  • The 116 companies analyzed in this study increased their combined liquids and natural gas production 2% from 2017 to 2018
  • Proved reserves additions in 2018 approached their highest levels in the 2009–18 period
  • The companies reduced debt in 2018 by more than $60 billion, the most for any year in the 2009–18 period
  • Refiners’ earnings per barrel declined slightly from 2017 to 2018

The EIA’s annual review is available to download at this link.

For more on the benefits and features of an Evaluate Energy subscription and to find out how to conduct similar analysis yourself using our tools, click here to sign up for a demonstration.

Brazil leads in Latin America with over $12 billion in M&A deals

A new report from Sproule, the Daily Oil Bulletin and Evaluate Energy shows how, among Latin American nations, Brazil has secure by far the highest level of M&A investment in upstream oil and gas.

The full report, which looks at the past five years of deal activity and the key drivers in Brazil, Argentina, Colombia and Mexico, is available to download here.

Led chiefly by investment from Norway’s Equinor ASA, over the past five years Brazil has received $12.4 billion in asset and corporate deals or farm-in agreements. Only 9% of 2019 Latin American deals up to and including April 30, 2019 involved assets outside of Brazil.

Source: Latin America: Assessing the impact of oil prices and the political climate on upstream M&A activity – Download here.

Brazil has also enjoyed a great deal of success in bidding rounds.

This new report analyzes:

  • The companies involved in Brazil’s bidding rounds since 2014;
  • How much was spent to win the blocks on offer; and
  • How Brazil’s success in attracting outside investment to new exploration acreage has grown over time.

Download the full M&A report from Sproule, the Daily Oil Bulletin and Evaluate Energy at this link.

Latin America: 5 key takeaways from Sproule, DOB and EE M&A activity report

A new report from Sproule, the Daily Oil Bulletin and Evaluate Energy shows how politics and fluctuating oil prices continue to dominate headlines and influence appetite for investment in Latin America’s upstream oil and gas industry.

The full report is available to download at this link.

Five key takeaways

1. Government changes impact M&A appetite across the region

  • Mexico’s change in government led to the suspension of licensing bid rounds and delayed farm-out arrangements;
  • Brazil’s change in government has had less of an impact domestically, so far, on oil and gas development. The country continues to pursue offshore opportunities and create an onshore sector; and
  • Argentina’s presidential elections are scheduled for October. The current administration made energy self-sufficiency a strategic goal and a new government may revert to a prior regulated domestic market structure.

2. Upstream M&A deal values dropped 64% in 2018 compared to 2017. 2019 also began slowly until a $1.3 billion deal was agreed in Brazil in April.

Source: Latin America: Assessing the impact of oil prices and the political climate on upstream M&A activity

3. Brazil remains the clear leader in terms of the value of M&A deals, while Colombia has seen the largest number of deals agreed.

4. Equinor (formerly Statoil) is the key driver behind deal activity in Brazil since 2014. The company has invested $5.3 billion in Brazilian asset acquisition since the latter half of 2016.

5. Canadian companies dominate in Colombia. Of the 73 M&A deals in Colombia between 2014-2018, more than 50% involved an acquiring company headquartered in Canada at the time of the deal.

Download the full M&A report from Sproule, the Daily Oil Bulletin and Evaluate Energy at this link.

Two years of deals create new 90,000 boe/d Appalachian Basin producer

Evaluate Energy’s review of Q1 M&A activity sheds further light on the rapid growth of one U.S. oil and gas player operating in the Appalachian Basin.

Thanks to its latest acquisition, for $400 million, Diversified Gas & Oil Plc now produces more than 90,000 boe/d. That deal saw them pick up 20,700 boe/d in assets in Pennsylvania and West Virginia from HG Energy II Appalachia LLC.

The purchase is Diversified’s second largest, behind a $575 million acquisition in June last year from EQT Corp. Two years ago, Diversified produced under 7,000 boe/d.

Full details can be found in the latest Evaluate Energy upstream M&A report, available for download here.

Source: Evaluate Energy Global Upstream M&A Review – Q1 2019

Dismal Q1 sees global upstream oil and gas deals fetch just $9.8 billion

Evaluate Energy’s latest M&A report analyzing global upstream activity shows that just $9.8 billion of new oil and gas M&A deals were agreed during the first quarter of 2019.

This represents a 61% drop on spending in Q4 2018 and a 75% drop compared with Q1 2018.

Low oil prices and changing spending priorities were the two main causes. The full report is available now at this link.

Source: Evaluate Energy Global Upstream M&A Review – Q1 2019

While upstream spending in Canada ground to a halt almost entirely, assets in the United States attracted the bulk of Q1 activity, accounting for 60% – or $5.9 billion – of global upstream spending.

Nonetheless, this was still the lowest spend on U.S. upstream assets since Q1 2015 and a 67% drop from the $17.7 billion recorded in Q4 2018.

Equally, the highest price M&A activity was an offer made by a hedge fund to acquire Permian Basin producer QEP Resources Inc. that is just one option being considered by the target company.

If this deal comes to nothing, Q1 2019 would be the worst individual quarter for U.S. upstream deal-making over the last 10 years.

Evaluate Energy’s M&A review for Q1 2019 is available to download now and includes analysis on the following:

  • The changing spending priorities of upstream companies that weakened M&A appetites
  • Two years of acquisitions that created a 90,000 boe/d producer in the Appalachian Basin
  • Major asset sales around the world by Chevron, Murphy and Marathon Oil

Canadian upstream M&A hits $11.2 billion in 2018

In another year where North American deals dominated upstream M&A activity, Evaluate Energy’s latest Global M&A review shows that Canada saw US$11.2 billion in new deals announced in 2018. The full M&A review can be downloaded at this link.

This US$11.2 billion appears a major drop from the total value of deals in 2017 (US$32.0 billion) – this value, however, was skewed by a handful of major oilsands sector deals in the first quarter worth a combined US$24.3 billion.

Source: Evaluate Energy M&A Database

2018 almost had a major oilsands deal of its own – that is, before Husky Energy’s attempted US$4.9 billion takeover of MEG Energy was terminated last week. Husky decided that it would not extend the offer that expired Wednesday without receiving the necessary two-thirds support.

“Husky’s share price rose immediately after this announcement by 13%, which arguably shows that Husky’s shareholders were not enamoured with a deal taking place in the current pricing environment,” said Eoin Coyne, Evaluate Energy’s senior M&A analyst and author of the Evaluate Energy 2018 review.

“At C$11 per share and US$4.9 billion, the deal would have been the fourth largest in the Canadian oilsands sector since the start of 2014, but it seems now that we’ll have to wait and see if any further big-money consolidation will take place in the Canadian oilsands patch after the raft of activity early last year.”

Evaluate Energy’s M&A review of upstream deals in 2018 is available at this link. The report includes details on global deal-making trends, the largest upstream deals of the year in Canada and around the world, as well as an in-depth look at a huge year for deals in the United States.