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NrgEdge interviews Dr Mazlan Madon who is an independent geologist. He is also involve as a member of Commission on the Limits of the Continental Shelf and Academy of Sciences Malaysia. A passionate geologist with vast experience, Dr Mazlan Madon is considered among the top Geology experts.


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1) You are someone who has taken up many geologist position with Petronas over the years. Are you able to share with us what kept your passion burning in order for you to be in the industry for more than 30 years?

I consider the many positions that I was appointed to during my service with Petronas were merely following the “natural” course of a career progression, starting as a trainee geologist in 1984 to the penultimate technical position of “Custodian” in 2007. Since then I had held various Custodian positions within different parts of the organisation, doing slightly different things but essentially the same role. Whether one considers a span of 23 years to reach the “top” to be slow, ‘average’, or fast, is a different question altogether. I think, for me to have stayed in the same industry for more than 30 years is not unusual, especially in the oil/gas industry. A more interesting question that people often asked is what kept me going for so long in the same company. The simple answer is my passion for geology. It is fair to say that I care more about geology as a science than its application to oil/gas exploration, because in a way, passion for the science is more everlasting than one’s love for exploration (which tend to emulate the oil price).

2) During your years with Petronas, you wrote a book titled “Petroleum Geology and Resources of Malaysia” which was the main source of reference for the petroleum geologist within the region. What was the factor that inspired or influenced you to write this book? 

To be clear, the book was a team effort, and was a deliberate initiative by the management of Petronas at the time, to share the knowledge gained through decades of oil exploration in the country, with not just the oil industry people but the public at large. So a team was assembled and headed by a project manager/chief editor, and I was lucky to be called in by my boss to work full-time on it, along with two other people. It was 1996, and I had just re-joined the company after finishing my PhD studies and I think the momentum helped, because there was an enormous amount of documents I had to go through in order to provide a balanced view of the geology of each basin or province in Malaysia, based on the knowledge at that time. I was also fully aware that as an author I also represent, in some way, a Petronas ‘view’ of the geological understanding at that time.

3) As we know, you are a member of the Commission on the Limits of the Continental Shelf (CLCS), a body of experts established under the UN Convention on the Law of the Sea (UNCLOS). Are you able to tell us more on this position?

The CLCS consists of 21 members elected every 5 years from among the nationals of countries (coastal State) that ratify the UNCLOS. So, I was nominated by the Malaysian government to serve in that commission, but I serve in my personal capacity. Members of CLCS are experts in either hydrography, geology or geophysics. Under article 76 of UNCLOS, a coastal State may submit to the CLCS particulars relating to the limits of the continental shelf beyond 200 nautical miles. The main role of the CLCS then is to consider the data and information submitted by the coastal State in the justification to extend its continental shelf beyond 200 nautical miles.

4) The world is constantly evolving, and new technologies have been given birth in the recent years. What are the most impactful technologies you feel that had greatly aid geologists or explorers like yourself in terms of new field research and development?

There is no doubt that as far as the oil exploration/development is concerned, seismic technologies have contributed immensely to the success of the business. On the flip side, it could be argued that because seismic has been so successful as a body of technology, some managers became over-reliant on it while inadvertently neglecting the fact that a brilliant technology still requires competent humans to use it. Besides seismic, an overarching factor in the industries’ success is the rapid development of computers. I still remember using floppy disks on DOS-based PCs when I started in 1984 and when the internet was still at a very rudimentary stage. Look where we are now due to the power of computers.

5) With fewer oil companies investing in exploring new oil fields in the current oil price climate, do you think this is a short-sighted move? Also how do you see the market picking-up again in terms of new exploration projects in this region?

I think it is just a normal business practice to cut back on exploration when the oil price is low, but how high exploration is going to bounce back depends on our appetite for new ideas and new plays. Bear in mind, activity was already at a low level in the traditionally mature regions, not because of the oil price but due to the higher risks and unfavourable economics.

6) In the current low oil price climate, a lot of exploration projects have been put on-hold. This has inadvertent lowered the demand for new geology talents. What are the options available for those who are specialised in this discipline? Are their skills transferrable?

It is not entirely true, or wise to assume, that due to less exploration projects, there is lower demand for “new geology talents”. I would say, less exploration projects may see less need for that many operations geologists but the company would need to do more “research” to prepare for the next wave. In any case, new talents would not be put straight onto exploration projects because there is a lag time between a new talent coming in and when he/she is ready to be deployed to the projects.

7) In today’s world, everything is going digital, even learning. Digital learning for geologists in Oil & Gas is now possible with e-courses, live webinars and even virtual field trips! Do you think geologist today are adapting to these new platform effectively? What do you think are the possible barriers preventing these new learning technologies from flourishing further, if they are indeed effective learning methods?

I am not worried about young people adapting to new platform. But I am not sure that they are able to absorb all the knowledge that is made available to them, in a way that will make them more productive in their work, bearing in mind their already busy day-to-day work schedule. My guess is that most people will have some spare time for one or two ‘extra-curricular’ endeavours outside of their ‘normal’ work. If those courses are remotely relevant to their work, it would not be an effective learning tool.

8) As we know, you came out with publications throughout your career. For now, you have retired, hence, will you continue publishing geology related publications to aid/educate other geology enthusiast?

Unlike a manager who loses his power and privileges upon retirement, a scientist never truly retires. When I retired, they took away my company laptop, but I could still write. I consider writing technical articles as one of the two most important tasks for a scientist. The other one is reading. Writing is the best way to articulate one’s thoughts and understanding of a particular subject in the vast field of geoscience. It is erroneous to think that a geologist who happens to work in oil and gas must write only on petroleum geology. A musician does not have to just play the blues. So, yes I will do my best to continue to write and publish articles of interest.

9) As an industry expert, you have had considerable experience as a geologist/geoscientist. For someone who’s just beginning their career in the industry, what advice can you give him or her? Do you feel that youths today have more opportunities to nurture their passion and what life lessons are you able to share with them?

I don’t consider myself an industry expert, but a geology or geosciences expert, maybe. So my only advice would be: to be honest in what you do, seek knowledge as truth, not half-truths, and not because your boss wants to hear it, but because you need to understand it yourself. Yes, young people are given ample opportunities, but they take too much time to decide what part of geoscience they like, before they can move forward in their career. Geoscience is a vast subject, with many inter-related sub-disciplines and topics. The problem in the way our industry has developed is to steer young people to want to do a very small part of geoscience, without wanting to or make it necessary to have a broader knowledge of the science. The result is a so-called ‘specialist’ but ironically with very little depth in understanding and lacking a broader appreciation of the scientific implications.

10) May I know what was the book you wrote that gained recognition? Are you able to elaborate more about this recognition and book? Do you think that the new generation can contribute in future?

It was not a book I wrote. In 2017, the AAPG, as part of its 100th year celebration, wanted to publish a book, “The Heritage of the Petroleum Geologist” which is a sequel to its 2002 publication of the same name, which had honoured 43 “pioneering and notable geologists” for their contribution to the profession.  So, what AAPG did was to invite another 58 “accomplished and distinguished” geologists to make the total number of honourees 101, symbolic of 100 for the centennial celebrations plus 1 additional individual “to symbolize the passing of our deep heritage to the next generation of energy-finders”. Like all the other honorees, I was asked to contribute two pages of my “achievements, disappointments, anecdotes, advice” for the next generation, and was lucky to be chosen as one of the 101 honorees at the AAPG Convention 2017 in Houston last April.

Of course, the new (meaning younger) generation can contribute, but they must do it with sincerity, honesty and passion. I was once young too, and came into geology by chance, like many geologists I know. In order to make meaningful contribution, people often say, we must be “passionate” about our work. The word “passionate” has been used a lot by managers during my time when they were trying to motivate the youngsters. But passion takes time to develop, and you cannot fake it. You have to first “like” what you’re doing, before you can be “passionate” about it. When you are young, you wouldn’t know where the career would take you, until you are really deep into the subject and develop a kind of “passion”. You cannot be passionate if you don’t know enough about the subject or the work that you’re doing.
By “contribution”, I take that you mean contribution to geology, as a science and as a profession. The new generation can contribute to the science of geology by learning as much as they could, mainly by themselves, through reading and writing. After all, scientific knowledge grows from the ideas generated and written by scientists for people to read. Knowledge not shared is not knowledge. Attending conferences, making presentations, and writing technical papers are all part of the contribution to scientific knowledge but not all of it. For the geological profession, the new generation should join a scientific organization or geological society where they can interact with their peers as well as with other scientists and even students to share experiences and learn from them. These can be done in many ways, from organizing seminars, workshops, field trips to formal training sessions. Nowadays, there seem to be a lack of interest in joining scientific societies, like the Geological Society, for geologists, when especially in the petroleum industry wherein the perception is that all the knowledge and training are available within the industry or company and so joining a scientific society does not bring any benefit. I think this perception and attitude need to change. Contribution to geology and to the geological profession is not, and should not be, limited to making money for the oil companies, but also for the benefit of society at large.


11) With your intention to do a forum discussion, how will you work with us in terms of moderating those discussion at our NrgGuru section?

As I understand it, NrgGuru is a platform for users to ask questions relating to the oil and gas industry. In that regard, I will try to answer mainly questions that relate to my own knowledge and experiences, and leave other questions for other experts.


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What Stays, What Goes

It was a headline that definitely opened eyes and definitely perked up ears. News that supermajor Shell was in the process of reviewing its holdings in the largest US oil field – the onshore Permian basin – came as a shock. On one hand, why was Shell looking to sell off its assets in the prized US shale patch only months after naming it one of its nine ‘core’ upstream areas? On the other hand, the prospect of taking over Shell’s sizable acreage in the Permian has set its competitors operating in the same shale patch sniffing around for opportunities.

The answer to the former has been most influenced by a recent judgement at a court in The Hague, where Royal Dutch Shell is headquartered. The court ruled that Shell’s carbon plans – which calls for a reduction of greenhouse gas emissions to net zero by 2050 and an absolute 20% reduction by 2030 – was insufficient and not in line with the climate change goals of the Paris Agreement. Instead, the court ordered that Shell must reduce its emissions by 45% from 2019 levels by 2030, siding with environmental NGO Friends of the Earth which brought on the case by claiming that Shell was violating human rights with its current plan. Crucially, and unusually, the court applied the verdict to Shell’s entire global operations, spanning multiple jurisdictions, rather than limited to just Dutch holdings. Shell has announced plans to appeal, which could drag the process on for years in higher courts. But on the off-chance that this judgement remains binding, it is perhaps looking for ways to shave off carbon-intensive assets.

Why else would chatter suddenly surface that Shell was considering selling off its collection of prime Permian acreage located in the prolific Delaware basin? After all, just a few months ago in February, Shell announced that it was planning to reshape its upstream business to focus on nine core areas that generated 80% of its revenue – Brazil, Brunei, the Gulf of Mexico, Kazakhstan, Malaysia, Nigeria, Oman, the UK North Sea and, of course, the Permian Basin in the US. Although Shell is not among the largest Permian players, its 260,000 acres are still sizable and its output of some 60,000 b/d ranks Shell among the Permian’s 20 largest producers. Valuations suggest that the sale could fetch as much as US$10 billion, which is a lot of cash that Shell could redirect to clean energy initiatives if the aim is to conform to the court order. Because Shell is not exactly in fire-sale mode; its asset divestment program to hive off non-core assets to pay for its US$53 billion acquisition of BG Group in 2015 was already complete.

To be fair, for all the activity in the Permian, sustained profitability has proven elusive. Not just to Shell, but other major players there as well. The rapid drop-off in well productivity after the first two years means that players have to be constantly drilling and discovering, while a large-scale traditional crude oil field could last for decades after initial production. Shell is also not the only one to consider shedding assets; Chevron and ExxonMobil are also rumoured to be considering divestment as well. And why not? With crude prices at their highest point since late 2018, it is a good time to fetch the best price for oil assets. Most Permian deals in 2021 have closed at between US$7,000 and US$12,000 per acre – already a major increase from 2020 and 2019 – but Shell’s prime 260,000 acres acquired from Chesapeake Energy and Anadarko in 2012 would fetch a major premium, possibly almost as high as US$40,000/acre that would be in line with Pioneer Natural Resources’ acquisition of DoublePoint Energy in April 2021. Any sale would definitely exceed Shell’s initial investment of US$1.9 billion, fetching a tidy profit. Of course, the move would also shrink Shell’s US footprint, limiting it to the Gulf of Mexico (where the Whale field FID is expected soon) and a single oil refinery (Norco), after selling its stake in the Deer Park refining site to Pemex from an unsolicited bid.

If the sale goes through – and it is still a big if at this point – then Shell’s loss will be someone else’s gain. Who would that be? Potential bidders include ConocoPhillips, Devon Energy, Chevron, EOG Resources or even private equity firms that have not been scared off by the potential debt burden of Permian assets. Shell is likely to be looking for an all-cash deal for the entirely of the asset, but is reportedly open to also parcelling up the land into multiple packages. According to sources, a data room with full information on the assets has already been opened.

Looking at the location of Shell’s Permian assets, synergies exist with ConocoPhiliips and Chevron, which both own acreage close to the Shell holdings. Other potential buyers that operate in the Delaware region of the Permian include Occidental and EOG, with Devon Energy being the smallest company that could likely afford a purchase. But Occidental is still busy adjusting after outbidding Chevron in a blockbuster acquisition of Anadarko, which could preclude a purchase by Shell’s partner in its Permian operations. Pioneer Natural Resources might also be excluded as a potential buyer, given that it primarily focuses on the Midland region east of Delaware. But even if the desire is there, there are additional hurdles. Given the immense focus on climate change and the industries that contribute to it, capital is increasingly a challenge, since the financing of fossil fuels is under massive pressure.

Not that those hurdles are insurmountable. The pressures facing a supermajor like Shell – or even ExxonMobil and Chevron – do not necessarily apply in the same measure to other players. If Shell is willing to sell, then there will be plenty of willing buyers vying for the assets. But what is also certain is that recent climate change moves that are ongoing in the boardrooms of energy giants are starting to have very concrete implications and applications on operations. The heat fuelling merger and acquisition activity in the Permian is about to get a lot hotter.

Market Outlook:

  • Crude price trading range: Brent – US$72-74/b, WTI – US$70-72/b
  • Both global crude benchmarks – Brent and WTI – cross the US$70/b threshold, recording the highest level of crude prices since October 2018, as the market focuses on the sustained improvements in fuel demand heading into the crucial summer season in the normal atmosphere that typically boosts road and air travel
  • The outbreak of new Covid variants is still a concern, but the accelerating pace of vaccinations – even in the hardest-hit countries– are providing some reassurance that any current lockdowns will not be prolonged
  • OPEC+ is predicting that oil demand growth will jump by 5 mmb/d in the 2H21 from 1H21 levels, setting the stage for further easing of the OPEC+ supply quotas; Iran’s return to international crude markets is likely to be further afield as talks to revive the 2015 nuclear deal enter into roadblocks

End of Article

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June, 19 2021
What’s Next For Canadian Oil Sands

It cannot be said that the conversation around sustainability and carbon intensity in the energy industry happened overnight, since the topic has been a subject for over five decades. But what has changed is that there has been a major acceleration in the discussion in the last year, and even the last month. The European majors and supermajors have all adopted ambitious carbon-neutral goals – even though some jurisdictions are saying that those aren’t even enough. Over the pond, even shareholders are pushing the traditionally more reticent American giants to adopting stronger climate change goals. Nothing is more emblematic of this change that the shareholder revolt at ExxonMobil’s recent AGM, where upstart activist investor Engine No. 1 managed to oust a quarter of ExxonMobil’s board; the initial tally saw two of its candidates elected, but the final numbers showed that three of Engine No. 1’s nominees now sit on the Board of Directors with a remit to initiate climate change manoeuvres from the inside.

That sort of conversation will be jittery for a particular section of the industry: Canadian oil sands – the heavy, sandy deposits of bitumen in Alberta that provide Canada with the third-largest proven oil reserves in the world. Extracting this heavy stuff is expensive, requiring large-scale excavation and massive capital spending that only really made economic sense with the oil price boom in the late 2000s. Shipping this tarry substance is also a challenge, necessitating dilution with lighter crudes to be shipped via pipeline – which is the only major viable route to market for landlocked Alberta, sending the tarry substance all the way south to the US Gulf Coast for processing. The problem is that extracting oil sands is extremely energy-intensive – with the main culprit being steam injection to liquify the underground bitumen – that has resulted in some of the highest carbon emissions per barrel in the world. In a world racing towards net zero carbon emissions, that is quickly proving to be unacceptable.

So while the climate change debate rages on in the boardrooms of the largest energy firms, the exit has already begun from Alberta, operationally and financially. The latest moves come from Chevron, which saw its shareholders overturn the company’s recommendation to instil stricter emissions targets for its crude, and the New York State Common Retirement Fund, the third-largest in the USA. Chevron’s CEO Mike Wirth recently signaled that he was open to offloading its 20% stake in the Athabasca oil sands project, stating that even though it generates ‘pretty good cash flow without needing much capital’ it was not a ‘strategic position’. Wirth insisted that Chevron wasn’t operating on a ‘fire-sale mentality’ but would consider selling if it got ‘fair value’ – with in business-speak is basically as invitation for offers. But would those offers be forthcoming? Investors all around the world have pulled back from financing Canadian oil sands, limiting the pool of potential buyers. In April, the New York state pension fund restricted investment in six oil sands companies – Imperial Oil, Canadian Natural Resources, MEG Energy Corp, Athabasca Oil Corp, Japan Petroleum Exploration and Cenovus Energy – claiming that they ‘do not have viable plans to adapt to the low-carbon future, posing significant risks for investors’. The amount of funds (US$7 million) is a drop in the ocean for the US$248 billion pension fund, but the message it sends is loud and clear.

Taken as it is, this could be an exit. But taken as a collective movement considering divestments over the past 3 years, this is an exodus. In May 2020, Norges Bank Investment Management – the world’s largest sovereign wealth fund with over US$1 trillion in assets gleaned from Norway’s oil industry – pulled back entirely from Canadian oil sands, selling nearly US$1 billion in four major firms citing concerns over carbon emissions. While no other major pension fund has followed suit, private investors have, including titan BlackRock that has begun to exclude oil sands from its major funds Financing is also proving tricky, with a string of major banks – including HSBC, ING and BNP Paribas – either paring back or stopping lending entirely to the industry; the insurance industry is also pulling back, with The Hartford stopping investing or insuring of the Alberta crude oil industry.

These high-profile investment and financing moves have dimmed the shimmer of an industry that was never that clean to begin with. But what will hurt is the pullback of upstream players, which hollows out the pool of companies left to exploit what is an increasingly unattractive asset. Before Chevron even contemplate its sale, Shell already sold its assets in 2017 for US$8.5 billion and ConocoPhillips offloaded to Cenovus Energy as part of a broader sale including gas assets for US$13.3 billion, also in 2017. Norway’s Equinor, too, has liquidated its position. Then in February 2021, ExxonMobil dropped a bombshell – effectively eliminating every drop of oil sands crude from its worldwide reserves, a tacit admission that oil sands would not form part of its upstream focus (at least at current prices) for the foreseeable future, especially with more attractive propositions in Guyana and the Permian. Given its recent shareholder revolt, it is unlikely that oil sands will be back on the menu ever.

The players in Alberta are trying to fight back. Having been consolidated in less than a dozen major players – from oil sands specialists to more integrated players such as Suncor – the industry is trying to rally institutional support, stating that traditional industry is still necessary to build the clean energy industries of the future. Suncor’s CEO Mark Little puts it this way: ‘this is way more complicated (than its seems)… the wind farm can’t be the solution to every problem. It’s not. So we need to find innovative solutions.” The oil sands patch’s biggest players are also banding together to form an alliance to achieve net-zero greenhouse gas emissions by 2050 – similar to the goals of most energy majors – as it tries to convince not just the world, but also Canada’s own government that Alberta has a continued role in the country’s energy transition. Efforts include linking facilities in Ford McMurray and Cold Lake to a carbon sequestration hub, expanding carbon capture and storage technology, accelerating clean hydrogen and other clean technologies such as direct air capture and fuel switching. The timeframe and viability of this is critical, given that Prime Minister Justin Trudeau has already announced plans to raise Canada’s carbon price steeply to accelerate its energy transition.

Those are bold plans and bold ambitions. But will it be enough? Can the exodus be stemmed? Or will the industry be whittled down to a handful of local players isolated from the wider energy world, removed from climate change engagement completely? It is difficult to tell at this point, but at the very least, things are starting to move in the right direction. Even if the pace is as slow as the crude sludge mined in Alberta.

End of article 

Market Outlook:

-       Crude price trading range: Brent – US$71-73/b, WTI – US$69-71/b

-       Confidence in the crude markets has vaulted global price benchmarks to their highest level in two years, with both Brent and WTI exceeding the US$70/b psychological level

-       Underpinning this rally are signs that vaccinations are boosting economic activity, with the likelihood of some travel and hospitality sectors reopening fully across the northern hemisphere’s summer, while crude marker indication show tightness in the market

-       That will reinforce OPEC+’s position to ease its supply quotas from July onwards, with club’s goal likely to be keeping prices around US$70/b – a level that should stabilise internal finances and budgets for most member countries. 

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June, 13 2021
M & A in the US Shale Patch

It is only 5 months into 2021, and already Bloomberg estimates that merger and acquisition (M&A) activity in the US shale patch has more than doubled over the equivalent period in 2020 to over US$10 billion. Given that Covid lockdowns sapped energy from shale drilling from March 2020 and what was left was decimated again in April 2020 when US WTI prices (briefly) collapsed into negative territory. From this point onwards, it may not take much to maintain this doubling of M&A activity in the US shale patch over the next 7 months. But don’t call this a new trend; call it what it is: the inexorable centralisation of US shale as the long freewheeling Wild West years give way to corporate consolidation.

Even before Covid had been unleashed upon an unsuspecting world, this consolidation was already in full swing. When the US shale revolution first began accelerating in the early 2010s – when crude oil prices were high and acreage was cheap – there were thousands, maybe even tens of thousands, of small independent drillers vying alongside medium and large upstreamers busy striking riches across American shale basins such as Bakken, Eagle Ford, Marcellus and, of course, the Permian. But too many cooks spoiled the soup. The US shale drillers who were acting capitalistically without concern for discipline incurred the wrath of OPEC and caused the oil price bust in 2014/2015. For larger players were deep pockets and wide portfolios, the shock could be absorbed. But for the small, single field or basin players, it was bankruptcy staring them in the face. The sharp natural productivity dropoff of shale fields after initial explosive output meant profits had to be made super quick and super fast; if debt kept mounting up, then drillers must keep pumping to merely stay alive. But there is another option: merge or acquire. And so those thousands of players started dwindling down to hundreds.

But it wasn’t enough. Even though crude prices began to recover from 2016, it never again reached the dizzying levels of the boom years. Debt accumulated turned into debt to be repaid. And the financial community got wiser. Instead of being blinded by the promise of shale volumes, investors and shareholders started demanding value and dividends. Easy capital was no longer available to a small shale driller. And because of that no new small shale drillers emerged. Instead, the big boys arrived. Because shale oil and gas still held vast potential, the likes of ExxonMobil, Shell and Chevron started moving in. ExxonMobil went as far as calling the Permian its ‘future’ (though this was in the days before its super discoveries in Guyana were announced). With consolidation came cohesion. Instead of a complicated patchwork of small plots, a US shale operator’s modus operandi was now to look to its left or right for land that someone else owned which could be stitched up into its own acreage forming a contiguous asset. And so those hundreds of players started becoming dozens.

In late 2020, this drive ratcheted up as the prolonged Covid-caused fuels depression freed up plenty of candidates for deep-pocketed players. ConocoPhillips bought Concho Resources for US$9.7 billion. Pioneer Natural Resources snapped up Parsley Energy for US$4.5 billion. Chevron closed its US$5 billion acquisition of Noble Energy (after failing to acquire Anadarko after being outbidded by Occidental Petroleum in 2019), while Devon Energy snapped up WPX Energy for US$2.56 billion. All four were driven by the same motive – to expand foothold and stitch up shale assets (particularly in the Permian). This series of M&As rejigged the power balance in the Permian, propelling the four buyers into the top eight producers in the basin, joining Occidental, EOG, ExxonMobil and Chevron. These top eight Permian producers now have output of over 250,000 b/d, accounting for nearly 60% of the basin’s 4.5 mmb/d output.

You would think that this trend would continue until the Permian Big Eight became the Permian Big Four for Five. And this could still happen. But the latest M&A activity from a major Permian player suggests that the ambition may well be too constrained. Cimarex Energy, the tenth largest player in the Permian with output of some 100,000 b/d, just entered into a merger to create a US$17 billion Houston-based shale driller. But its partner was not, say, fellow Permian buddy SM Energy (80,000 b/d) or Ovintiv (75,000 b/d). Instead, Cimarex chose Cabot Oil & Gas, a gas-focused player that operates almost entirely in the Marcellus shale basin in Appalachia, over 1500km away from the Permian.

In response to the merger, share prices of both Cimarex and Cabot fell. Analysts cited a dilution of each company’s core focus (along with the meagre premium) as concerns; implying that investors would be happier if Cimarex stayed and grew in the Permian, and Cabot did the same in Marcellus. But that’s a narrow way of thinking that both Cimarex and Cabot were happy to refute. “This is a long term move,” said Cimarex CEO Tom Jorden. “This combination allows us to be ready for those (swings in commodity prices)”.

While pursuing in-basin opportunities could make shareholders happy in the short-term, a multi-basin deal might be a surprise but is also a canny long-term move. After all, at some point the Permian will run out of oil. And so will gas in Marcellus. Or the US government could accelerate its move away from fossil fuels. If an energy company puts all of its eggs into one basket – or basin, in this case – then when the river runs dry, the company’s profits evaporate. It is a consideration that other single-basin focused players like Pioneer, EOG and Diamondback will need to start thinking about, which is a luxury that other integrated players with Chevron and ExxonMobil already have. Consolidation in American shale basins is inevitable. But what is far more interesting is the new potential of cross-basin consolidation.

Market Outlook:

  • Crude price trading range: Brent – US$67-69/b, WTI – US$64-66/b
  • Global crude oil prices remain locked in their current ranges, with bullish signs of fuels demand recovery in North America, Europe and China offset by signs that the Iranian nuclear deal could be revived, which would lead increase OPEC supply
  • Iran, if reports are accurate, has already been preparing for this, establishing contact with former clients to gauge interest and pave way for its re-entry to the global oil markets, which could swell OPEC production by nearly 4 mmb/d
  • This will be a point of contention within the OPEC+ supply deal framework, since Iran would argue for exemptions (as Russia, Kazakhstan and Libya have) from official quotas; although the latest rhetoric from Iran suggests there are still plenty of gaps to restore the original 2015 nuclear agreement, allaying fears of a quick ramp-up
June, 08 2021