The ten most popular energy transcripts published in May 2022 show remarkable consistency of trends in the sector:
- High capital intensity and long payback period of renewables means other investments are paused (deepwater, emerging markets, etc.)
- The implications of the impossibility of building new pipelines
- Supply chain and inflation woes
- Increasing automation of the workforce
From mega caps to small caps, there’s a clear pattern to what most concerns industry experts right now and long term.
Mega Cap ($200B – $1T)
XOM (Exxon) – Former Competitor Is Bearish on the Overall Deepwater and High Capital Intensive Oil & Gas Projects – Transcript
Currently, one of the larger impediments in oil production is transporting the necessary capital for drilling operations as supply chain issues have made it difficult to move this type of capital to where producers want it to be even as higher oil prices make up for rising transportation costs.
- While major companies like Chevron and Exxon are committing major capital to renewable energy, “Until that pays off, they’re not going to tie up their capital allocation investing in other areas. For example, deep-sea exploration, you can spend $500 million and hit a dry hole. I don’t think that’s coming back.”
- Automation, specifically in offshore developments, will lower costs and improve investments in the coming decades as both general and human risk are decreased when new drilling operations take place.
CVX (Chevron) – Former Geosteering Specialist Sees Strong Upside Potential for CVX in a High Oil Price Environment – Transcript
- It will take years for drilling operations to get underway in federal lands as the current administration is looking to open up leasing opportunities again with inflationary pressures and energy bottlenecks throttling supply chains.
- Brownfield projects will remain important as companies consolidate or acquire lands close to the infrastructural projects of other companies in order to save on capital expenditures at a time when operational costs to lift barrels have also gone down.
- The worst bottleneck in the present and the coming years would be transporting the capital necessary to drill in wells, forcing a lot of companies to instead carry their oil in trucks to a pipeline instead of investing in the infrastructure.
Large Cap ($10B – $200B)
BP (BP plc) – Former VP Thinks There Won’t Be Any Major Diversification Towards Lower Carbon Without a Helping Hand From Policy – Transcript
- As oil-rich countries turn to local or domestic companies for their oil and gas needs instead of multinational companies, the latter will have to diversify their energy sources.
- With carbon credits and offsets costing around $30 and $50 per ton in large markets, companies face light pressure to diversify their sources: this won’t become a priority for the industry until carbon reaches $200 per ton or policy forces companies towards lower carbon.
- Oil and gas companies are instead focusing on making their fossil fuels “cleaner”, essentially seeking to reduce their carbon footprint and simultaneously staying grounded on the main focus of their business model.
SU (Suncor Energy Inc.) – Former Director Believes SU Can Increase Financial Results by ~20-30% From Operational Efficiency Improvements – Transcript
- Capital expenditures related to Canadian oil and gas production are going entirely to sustainment in order to keep up with the growing demand for oil and natural gas as new projects are stalled and drilling operations have been at an “all-time record low” in the last 5 years.
- Keeping up pace with an increase in demand for fossil fuels will be difficult: novel pipeline projects are on pause and regulation remains stringent and companies are reluctant to invest the money on new capital resources.
- Retrofitting and replacing fossil-fuel fired boilers with natural gas turbines and with more environmentally-friendly infrastructure is “achievable” and “affordable” but distribution networks are tapped out and expanding pipeline networks remains a pressing issue.
KMI (Kinder Morgan Inc.) – Former Business Development Director Thinks Midstream Networks Face Growth Challenges and More Consolidation Is Likely – Transcript
- Proposed pipeline projects have stalled due to environmental concerns and litigation in the past decade, endangering prospects of growing infrastructure networks and current midstream projects.
- Nothing is more valuable right now than “pipe in the ground” which will foster consolidation between upstream companies and producers as new pipeline initiatives slowly become more and more impossible to carry out.
HES (Hess Corporation) – Former Engineering Advisor Thinks HES is a Great Company – Transcript
- Expect a growing automation of the workforce in oil and gas operations – potentially a 70% automated workforce in the future – as more nimble energy companies like Hess, Schlumberger, Halliburton and Baker invest in technological innovation and lead in the innovation push.
- Advancements in robotics, especially for drilling operations, will reduce the need for people at offshore sites but these changes will take time.
- Companies like Hess will thrive by keeping staff numbers level and increasing production and maintaining investments in deepwater wells.
HES (Hess Corporation) – Former Chief Engineer Believes Oil Will Be Structurally Undersupplied – Transcript
- With the initial shock to the oil and gas industry as a consequence of halted activity due to the pandemic, companies started looking into expanding current production projects – brownfield projects – but supply has not kept up with growing demand.
- Supply chains have been greatly affected by the pandemic and getting the oil to the final destination will remain an issue even as oil prices remain high and investments are made to ease supply chain woes worldwide.
- New drilling sites will take up to 8 years to get oil out from the ground and into the pipelines, a period of time in which supply will still be trying to keep up with growing demand as sanctions against Russian oil supplies also affect different countries.
LNG (Cheniere Energy) – Former Competitor Believes LNG Is the Way of the Future – Transcript
- Amid fuel shortages, an increase in US exports of liquified natural gas to Europe, and Europe moving away from Russian fossil fuels, natural gas represents a major opportunity for investors and the environment in the coming years.
- With a growing demand for natural gas and LNG, energy policy could focus on carbon and methane capture as viable industries that would address environmental concerns while making cleaner fuel.
- Capital investments and allowing old oil refiners to turn their plants back on would lower costs for consumers, but are not politically feasible.
MRO (Marathon Oil Corporation) – Former Planning Engineer Thinks Majors Are Not Investing Globally and CAPEX/Input Prices Are Up – Transcript
- Major oil and gas companies are holding off on making large capital investments in emerging markets, including African countries like Equatorial Guinea as a consequence of the COVID-19 pandemic damaging the economy of these countries coupled with a growing turn to more renewable energy investments elsewhere.
- However, even investments in greener types of energy in emerging markets are low due to little interest from private companies and governments in these countries.
Small Cap ( > $10B)
RRC (Range Resources Corp.) – Former Geophysicist Thinks RRC Can Make Healthy Profits With Natural Gas at ~$4-5 – Transcript
- Natural gas is the key energy for the present and for the next 50 years until the energy industry is in a place with fully economic renewable options, especially as a fuel that has a lower carbon dioxide emission than coal.
- Liquified natural gas will also be an important energy source for the foreseeable future given the geopolitical shifts regarding Europe reducing its dependence on Russian gas.
- American LNG exports will remain high as Europe diversifies its energy resources, which means prices will also remain high as demand for LNG until it ramps up.
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