Jason Lavis

Marketing Director at Natural Resource Professionals ltd.
Last Updated: September 13, 2017
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Business Trends
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The oil industry crash that started at the end of 2014…

… Doesn’t seem to have finished yet as the jobs outlook around the world has yet to improve. There are a few exceptions and anomalies such as the difficulties in finding frack crews, or the resilience of some of the Middle Eastern countries, due to production costs at or around $10 Bbl.

What we’re seeing are similar dynamics to past busts, not just in oil and gas, but in many industries.

Here are a few observations:

The largest companies are resilient due to the long term view they take of the market, and almost unlimited access to capital. For them, surviving a downturn involves adjustments such as accounting tweaks, bond sales, project deferments and job cuts.

Medium sized companies are selling off weaker assets, focusing on cash flow and becoming leaner. One example might include negotiating faster settlements for receivables and delaying payments to suppliers. The focus will be to look at under-performing assets that could be sold, rather than getting taken over by those higher up the food chain.

Small companies find out how valuable their business model really is. In good times, budget can be allocated by medium to larger companies with less caution and/or oversight. Of course, all companies do their best to be efficient at all times, but invariably there will be waste and frivolous expenses during booms. Small companies and start-ups that can survive during good times, might find that their goods or service is not needed when belts start to tighten.

We see daily reports of mergers, acquisitions, discoveries and project news for mid to large scale companies. This article will look at how a couple of smaller companies are riding the storm.

We got feedback from 2 very different companies…

… Then see how the lessons learned might help others who are also in the same position.

Relentless Pursuit of Perfection Ltd (rp²) are a leading wells consultancy company. They work with majors to facilitate seminars such as DWOPs, CWOPs and other performance/efficiency based workshops.

2015 and 2016 were fairly standard years for their main workshops, although they saw a drop off for interest in drilling coaching and other lower level services. 2017 is looking to be one of the busiest years ever.

We reached out for a quote from Dave Taylor, the Managing Director at rp²:

We’ve seen a complete drop off for coaching services which is to be expected as many people have dropped down to perform roles that would normally be beneath their pay grade.

The first half of 2017 was one of our best 6 months ever for the larger workshops. We’ve been very busy performing DWOP’s for mid to deep water projects. This might seem counter intuitive since deep water has been hit hardest by the crash.

In a $40-$60 price range, efficiency and cost cutting becomes not just a preference, but a necessity in order for a deep water project to be viable. The majors know about the new exploration crash, and the lead times to get a new project online.

They need future production, but it needs to be profitable. This is where rp² come in, we help major oil companies secure future supply, with minimal risk to their balance sheets by keeping efficiency high, and costs down.

So the lesson here, is that companies need products and services that help them survive. If you can help increase efficiency, and/or lower costs, then you’ll be needed as long as the industry itself survives.

Quality, Health, Safety And EnvironmentQuality, health, safety and environment are facets of exactly the same approach to the business. We can add efficiency and cost saving to the list.Location, location location…

Another way that a small company can survive, is to be placed in a location that is not being hit by the bust.

The oil and gas industry has always had a large transient sector. This applies to companies of all sizes, as well as the workforce themselves. In every oil country around the world, you’ll find satellite offices, and an expat workforce.

Why are there expat oil workers all over the world? The reasons are partly personal such as a love of travel or adventure. The main reason is financial, people and companies move to fertile locations based on economic opportunity. Sometimes these opportunities appear on your doorstep!

We spoke to Josh Munro the CEO at FROutlet, an e-commerce company who sells fire resistant clothing and equipment to oil and gas companies and workers.

Based in Texas, they’ve seen a steady increase in business in the past couple of years, although not without challenges.

The boom in the US onshore oil business has definitely helped us increase turnover. Through feedback from our customer support, as well as seeing patterns in customer addresses, we know that increased drilling activity has helped us.

We send a lot of packages to the Permian Basin, and Eagle Ford for example. We still have our own challenges such as competing with some of the huge national and international e-commerce retailers.

Being based in a booming area (Texas) and offering the same high quality brands, free delivery and money back guarantees has allowed us to do well. We realize how the global oil industry is doing, and we’re thankful that we’ve seemed to have stayed in the eye of the storm so far. One thing that is interesting, is that we tend to sell high end products such as those from Ariat, during good times and bad. Safety is something that should never be compromised on.

Whilst these two companies featured provide only anecdotal evidence, and there are no guarantees in the oil business, there are a couple of takeaways:

Whether you’re an individual worker, or part of a company, are there services and products that you can focus on, that are suited to a bad market? There are likely to be some ways that you could pivot, to allow yourself to thrive the way that Dave has done?

Are you based in the best place for the professional product or service that you’re offering? Now might be the time to consider a re-location of you’re an individual, or an expansion or satellite office into a more fertile area?

Oil and Gas SMEs business strategy case studies
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Brazil’s net metering policy leads to growth in solar distributed generation

Brazil’s growth in distributed generation from renewable resources—especially solar—has increased since it implemented net metering policies in 2012. As of mid-November 2019, owners have installed more than 135,000 renewable distributed generation systems in Brazil, totaling about 1.72 gigawatts (GW) of capacity, according to the Brazilian Electricity Regulatory Agency (ANEEL).

Solar photovoltaic accounts for the largest share of the total installed distributed generating resources, representing about 1,571 megawatts (MW), or 91%, of the country’s total distributed generation capacity. Small hydroelectric and wind account for 97 MW and 10 MW, respectively. Net metering policies allow owners of the renewable distributed generation systems to sell excess electricity to the grid for billing credits.

ANEEL’s policy initially allowed small generators using hydro, solar, biomass, wind, and qualified cogeneration of renewable sources of up to 1 MW of capacity to qualify for net metering. In 2015, ANEEL amended the rule to increase the maximum capacity for up to 3 MW for small hydropower and up to 5 MW for other qualified renewable sources.

Qualified generators can choose to sell surplus generated electricity back to Brazil’s grid in return for billing credits. As part of the billing credit structure, net-metering customers can generate credits earned on days when they generated more electricity than they consumed. Before 2015, these credits expired after 36 months, but now credits for excess generation expire after 60 months.

Most of Brazil’s distributed generation units are in the southern, southeastern, and northeastern regions of the country. The states with the most distributed generation units are Minas Gerais with 372 MW, Rio Grande do Sul with 223 MW, and São Paulo with 194 MW.

Brazil distributed generation by technology

Source: U.S. Energy Information Administration, based on data from the Brazilian Electricity Regulatory Agency (ANEEL)

At the end of 2018, ANEEL released a regulatory impact analysis and conducted a series of public hearing meetings to discuss economic aspects and sustainable growth of distributed generation in the country.

November, 20 2019
U.S. natural gas production, consumption, and exports set new records in 2018

U.S. natural gas dry production, consumption, and exports

Source: U.S. Energy Information Administration, Natural Gas Annual 2018

The U.S. Energy Information Administration’s (EIA) Natural Gas Annual 2018 shows that the United States set new records in natural gas production, consumption, and exports in 2018. In 2018, dry natural gas production increased by 12%, reaching a record-high average of 83.8 billion cubic feet per day (Bcf/d). This increase was the largest percentage increase since 1951 and the largest volumetric increase in the history of the series, which dates back to 1930. U.S. natural gas consumption increased by 11% in 2018, driven by increased natural gas consumption in the electric power sector. Natural gas gross exports totaled 10.0 Bcf/d in 2018, 14% more than the 2017 total of 8.6 Bcf/d. Several new liquefied natural gas (LNG) export facilities came online in 2018, allowing for more exports.

U.S. consumption of natural gas by sector

Source: U.S. Energy Information Administration, Natural Gas Annual 2018

U.S. natural gas consumption grew in each end-use sector. Demand for natural gas as a home heating fuel was greater in 2018 than in 2017 because of slightly colder weather during most of the winter. Similarly, the summer of 2018 saw record-high temperatures that increased demand for air conditioning and, therefore, electricity—much of which was fueled by natural gas. U.S. electric power sector consumption of natural gas grew by 14% in 2017, more than in any other end-use sector. The electric power sector has been shifting toward natural gas in the past decade because of favorable prices and efficiency gains.

dry natural gas production by state for 2017 and 2018

Source: U.S. Energy Information Administration, Natural Gas Annual 2018

U.S. natural gas production growth was concentrated in the Appalachian, Permian, and Haynesville regions. Pennsylvania and Ohio, states that overlay the Appalachian Basin, had the first- and third-largest year-over-year increases for 2018, increasing by 2.0 Bcf/d and 1.7 Bcf/d, respectively. Louisiana had the second-largest volumetric increase in dry production, increasing by 1.8 Bcf/d as a result of increased production from the Haynesville shale formation. Texas remained the top natural gas-producing state, with a production level of 18.7 Bcf/d, as a result of continued drilling activity in the Permian Basin in western Texas and eastern New Mexico.

November, 18 2019
Your Weekly Update: 11 - 15 November 2019

Market Watch  

Headline crude prices for the week beginning 11 November 2019 – Brent: US$62/b; WTI: US$56/b

  • The trade war between the US and China – and its implications on the rest of the global economy – continue to weigh down on crude oil prices, as varying indications from American and Chinese authorities paint a sketchy picture of how, or when, the trade dispute could be resolved
  • Mild improvement in US and China manufacturing and job offered hope for a respite, but the broader picture is still negative, particularly in India where a worsening economy is tampering fuel demand growth and triggering a diesel glut
  • With OPEC and the OPEC+ club preparing to meet in Vienna in three weeks, words from within the group are that the largest and most influential producers are not pushing for deeper cuts but will instead emphasise greater adherence to the current supply deal that is set to expire in March 2020
  • This comes as OPEC predicts that US shale will continue to steal its market share through 2023, making the prospect of further cuts unpalatable to members who are loathed to further sacrifice volumes amid weak prices
  • In Venezuela – where tumbling output has thus far made the OPEC task of curbing output easier – production and exports seem to have steadied, with international shipments exceeding 800,000 b/d for the second month in a row in October; most volumes going to China and Rosneft under barter deals
  • In the Persian Gulf, where the Iran situation is another potential flashpoint, a US-led multinational coalition has begun patrolling the vital shipping lane to prevent attacks and threats in the critical seabourne oil distribution pathway
  • Signs that US crude output is heading for a period of tempered growth after explosive growth seem to be confirmed by the chronic deterioration in the active US rig count; 7 oil rigs stopped operation, bringing the total count to 817 – the lowest number in 31 months
  • Until there is more clarity on the US-China trade situation or the outcome of the December OPEC meeting in Vienna, crude oil prices are likely to stay rangebound at US$60-63/b for Brent and US$56-59/b for WTI – not high enough to please producers, but not low enough to prompt decisive action


Headlines of the week

Upstream

  • Adnoc is aiming to start trading of its new Murban crude futures contract on the Abu Dhabi exchange in Q2 or Q3 2020, aiming to create a new price benchmark for Middle Eastern crudes while lifting destination restrictions on the grade
  • Hungary’s MOL Group has bought out Chevron’s interests in Azerbaijan for US$1.57 billion, acquiring a 9.57% stake in the Azeri-Chirag-Gunashli (ACG) field and an 8.9% stake in the Baku-Tbilisi-Ceyhan (BTC) pipeline
  • Equinor – along with partners ExxonMobil, Idemitsu and Neptune – have announced a new oil find in the North Sea at the Echino South well in the Fram field, with recoverable resources estimated at 38-100 million boe
  • The Ivory Coast has launched a new licensing round, covering five offshore blocks located near existing discoveries and infrastructure
  • The Canadian province of Alberta is loosening its crude oil production limits once again after a severe lack of pipeline capacity strained production last year by exempting new conventional wells from current output caps; Alberta currently allows producers to exceed their limits if shipping the excess by rail
  • Kosmos Energy has announced a new offshore oil discovery in Equatorial Guinea at the S-5 well of the Santonian reservoir in the Rio Muni Basin
  • Equinor is exiting Eagle Ford, selling its 63% interest and operatorship of its onshore shale plays in the area to Spain’s Repsol for US$325 million
  • As Total’s offshore Brulpadda discovery in South Africa moves ahead, the challenging geography of the Paddavissie play may require a fixed platform

Midstream/Downstream

  • South Africa’s Central Energy Fund and Saudi Aramco are collaborating on a new 300 kb/d refinery at Richards Bay that is expected to come onstream by 2028 as the largest oil refinery in the southern Africa region
  • The Chevron-SPC Singapore Refining Co joint venture delivered its first cargo of very low sulfur fuel oil in October in Asia’s key bunkering hub, ahead of the IMO deadline for marine fuel oil sulfur content kicking in in January
  • The refurbishment of the idled St Croix refinery in the US Virgin Islands is on track for completion in early 2020, reducing capacity by a third to 210 kb/d but increasing capacity for cleaner fuels, particular for marine usage
  • Husky Energy has completed the sale of its 12 kb/d Prince George refinery in Canada’s British Columbia to Tidewater for US$215 million

Natural Gas/LNG

  • The Port Kembla LNG import terminal in Australia’s New South Wales is facing delays, as Australian Industrial Energy and Japan’s JERA struggle to lock in customers to make the project commercially viable
  • Having taken over Anadarko’s interest in the Mozambique LNG project, Total is now looking to expand the export terminal with two additional trains, which could double capacity from a current planned 12.9 million tpa
  • The OMV/ETAP Nawara gas field in Tunisia is on track to produce first natural gas by end-2019, with capacity of 2.7 mcm/d boosting the country’s gas output by 50% and slashing gas imports by some 30%
  • After years of delays, the site for Indonesia and Inpex’s 9.5 million tpa Abadi LNG project has been decided as Yamdena island in the Arafura Sea

Corporate

  • Total will be exiting a key American industrial lobby group, following in the footsteps of Shell as it claims a divergent outlook on climate change issues
November, 15 2019