Fourth Quarter 2022 | Region Focus: Appalachian Basin
In this quarter’s newsletter, we focus on the Appalachian. Notable topics include Russia-Ukraine War’s effect on the demand for LNG exports to Europe in the face of winter, tight valuations between major operators, flat production levels in the region despite a high commodity price environment, as well as increased M&A activity in 2022 highlighted by Sitio Royalties and Brigham Minerals merger — creating the largest public minerals owner.
The economics of Oil & Gas production vary by region. Mercer Capital focuses on trends in the Eagle Ford, Permian, Bakken, and Marcellus and Utica plays. The cost of producing oil and gas depends on the geological makeup of the reserve, depth of reserve, and cost to transport the raw crude to market. We can observe different costs in different regions depending on these factors. This quarter we take a closer look at the Marcellus and Utica shales.
Shareholder Value Creation Abounds; ESG Interest Waning
M&A transaction activity in the Marcellus & Utica shales increased in 2022 relative to 2021, with large industry players motivated by free cash flow growth and creating shareholder value and less motivated by championing the ESG cause. In this week’s post, we examine the two largest transactions that occurred in but were not limited to the Marcellus and Utica shales in 2022.
The upstream oil and gas sector is highly capital intensive; production requires expensive equipment and constant maintenance. Despite higher oil and gas prices, E&P operators have refrained from increasing capital investment, and instead, are delivering cash to shareholders. In this post, we explore recent capex trends in the oil & gas industry and the outlook for 2022 through 28 selected public companies.
Key Aspects of the Energy Industry in 2021
The close of 2021 marked the end of a long upward march for the energy sector. With oil closing up the year at $75 and gas at nearly $4 per mmbtu, the commodity markets driving the energy sector were much more economically attractive to producers. Stock indices such as the XLE was up over 50% for 2021 and was by far the best performing sector. Rig counts rose along with prices. Crude production also rose to 11.7 million bbls/day with room to grow. In addition, OPEC+ has signaled it will continue its scheduled output growth. All of this growth is coming alongside the ascent of wind and solar. Even though the Omicron variant affected prices in December, most analysts believe that COVID won’t stop the growth. In this post, we review the industry at the end of 2021 and look forward to 2022.
The economics of Oil & Gas production vary by region. Mercer Capital focuses on trends in the Eagle Ford, Permian, Bakken, and Marcellus and Utica plays. In this post, we take a closer look at the trends in the Marcellus and Utica.
Activity in 2021 Was Muted Relative to 2020
M&A transaction activity in the Marcellus & Utica shrank in number in 2021 relative to 2020. However, the relatively greater magnitude of production density represented by the transactions in 2021 could prove to be a bellwether of more “transformational” transactions to come in 2022 as companies stake their claim in the gas and gas liquids-rich basins of Appalachia. In this week’s post we review M&A activity in 2021 including the EQT/Alta Resources and Northern Oil and Gas/Reliance transactions.
U.S. dry gas consumption will finish at an all-time high in 2019 and will continue to grow in early 2020. When one observes valuations for gas producers in Appalachia, they can quickly become dispirited. How can economics get this jilted in arguably the largest gas field in the world?
As the calendar turns to 2019, we turn our attention to the Appalachia region, and not by coincidence. Cooler temperatures in the winter months tend to lead to increased natural gas prices and consumption, and the Appalachia region is the largest natural gas producer in the country. Fourth quarter energy prices have moved in opposite directions, with crude prices declining steadily over the period while natural gas prices increased from about $3.0 to $3.5 per Mcf, peaking at over $4.8 in mid-November.
The domestic natural gas market has benefitted from large expansion in recent years, and this can be largely attributed to the growth experienced in Appalachia. Despite the continued growth, transaction activity in the Marcellus-Utica in 2018 was slower than in 2017. Some companies have been moving in to capitalize on the increased demand for natural gas while others are restructuring their balance sheets in order to focus primarily on higher margin assets, such as oil.
The oil industry is cruising. Producers are flocking to many oil rich plays, most notably the Permian Basin, Bakken, and Eagle Ford. Producers in these areas are all looking to exploit multi-zone payouts and gain significant efficiencies with new deep lateral and horizontal wells. While this strategy is working very well for oil producers, often lost in the oil excitement is the byproduct, additional dry and natural gas liquids. For producers targeting natural gas, this is not good news.
This week we look back at transaction activity and trends in the Marcellus & Utica plays in 2017. When we reflect about what happened, for whatever reason, images resembling something out of an episode of Desperate Housewives come to mind whereby the prying eyes of the marketplace peer out of their windows, surveilling old competitors that pack up and leave whilst new, and sometimes mysterious, neighbors move in. Read more about it here.
The economics of oil and gas production vary by region. The cost of producing oil and gas depends on the geological makeup of the reserve, depth of reserve, and cost to transport the raw crude to market. This post focuses on the economics in the Marcellus and Utica plays.
For the last two years we have been asking when will oil prices recover? But natural gas E&P companies have been asking this question for almost seven years. Analysts have worked to predict which companies will make a comeback once prices recover, but the road to recovery has been and will continue to be long and rocky.