1. ConocoPhillips' Takeover of Marathon Oil Creates 3rd Largest US Producer
- ConocoPhillips agreed to purchase Marathon Oil in an all-stock transaction valued at $22.5 billion, a deal that would lift the US upstream firm's production to 2.3 million boe/d, up by almost 400,000 boe/d.
- The transaction will make ConocoPhillips the third largest US producer in the Lower 48, only behind ExxonMobil and Chevron/Hess, whilst surpassing TotalEnergies and BP.
- ConocoPhillips will become the largest producer in Eagle Ford, with Marathon's average well performance surpassing its own productivity, simultaneously moving into the top 3 of Bakken operators.
- Conoco is seeking to convince shareholders by lifting its base dividend by $0.20 per share, equivalent to a 34% hike, with annual synergies between the two companies expected to reach $500 million.
2. OPEC+ Eyes Rollover of Production Cuts as It Woos New Members
- As OPEC+ meets again on June 2 in Vienna, with the oil markets expecting a rollover of existing production targets into the second half of 2024, members will once again scrutinize the oil group members' compliance with their voluntary production targets.
- The revamping of African production targets has been a key part of the previous OPEC+ meeting in December 2023, prompting Angola to leave OPEC after a 16-year-long membership.
- However, since then none of the OPEC+ African member countries have seen their production…
1. ConocoPhillips' Takeover of Marathon Oil Creates 3rd Largest US Producer
- ConocoPhillips agreed to purchase Marathon Oil in an all-stock transaction valued at $22.5 billion, a deal that would lift the US upstream firm's production to 2.3 million boe/d, up by almost 400,000 boe/d.
- The transaction will make ConocoPhillips the third largest US producer in the Lower 48, only behind ExxonMobil and Chevron/Hess, whilst surpassing TotalEnergies and BP.
- ConocoPhillips will become the largest producer in Eagle Ford, with Marathon's average well performance surpassing its own productivity, simultaneously moving into the top 3 of Bakken operators.
- Conoco is seeking to convince shareholders by lifting its base dividend by $0.20 per share, equivalent to a 34% hike, with annual synergies between the two companies expected to reach $500 million.
2. OPEC+ Eyes Rollover of Production Cuts as It Woos New Members
- As OPEC+ meets again on June 2 in Vienna, with the oil markets expecting a rollover of existing production targets into the second half of 2024, members will once again scrutinize the oil group members' compliance with their voluntary production targets.
- The revamping of African production targets has been a key part of the previous OPEC+ meeting in December 2023, prompting Angola to leave OPEC after a 16-year-long membership.
- However, since then none of the OPEC+ African member countries have seen their production restrained by their production cap apart from Gabon's slight 30,000 b/d overproduction, allowing OPEC to hunt for new members.
- Africa remains one of the last untapped frontiers of upstream development, prompting the OPEC+ alliance to court emerging oil producers such as Namibia, Ghana, and Senegal for potential membership.
3. India's Blistering Heat Lifts Power Demand to All-Time High
- Blistering heat has been a major factor in India's ever-increasing electricity demand figures, with the South Asian nation recording its highest-ever power demand on May 30, at 250 GW.
- According to India's grid operator, day-time demand has so far been met, but evening hours are set to see worsening shortfalls as solar generation is no longer available after sunset.
- Struggling to meet soaring air-conditioning demand, India has imported 2.5 million tonnes of LNG this month, the highest monthly number since October 2020, almost single-handedly dragging JKM prices into double digits.
- Coal still accounts for three-quarters of India's power generation and the 15% year-over-year increase in May electricity demand has been largely met thanks to record domestic coal output, soaring to 108 million tonnes in March.
4. Solar Energy Will be a Game Changer in the Middle East
- The Middle East is set to see a surge in new renewable power generation capacity, with solar energy expected to account for half of the region's power supply by 2050, as per Rystad Energy estimates.
- Home to over 280 million people, renewables currently account for a mere 5% of the region's electricity generation, with a hefty volume of oil and gas produced locally being burned for power.
- Natural gas represents almost 75% of the region's electricity generation, with countries such as Saudi Arabia or Kuwait still burning crude oil for power generation, the former as much as 650,000 b/d in the summer months.
- Solar energy is the cheapest energy source per unit of generation, with Saudi Arabia boasting the world's lowest LCOE for solar, at just $10.4 per MWh, prompting Riyadh to boost its solar capacity to more than 30 GW by the end of this decade.
5. Downscale of Saudi Upstream Ambition Bad News for Drillers
- Ever since Saudi Aramco canceled its 13 million b/d capacity expansion this January, drilling costs across the Middle East have been in a freefall, dropping 20% since the end of 2023.
- The average Middle East rate for a jack-up rig to drill in 361-400 feet of water was 120,000 per day in April-May, edging lower from a 7-year high of 145,000/day and dropping below the global average of 130,000/day.
- Operating a fleet of 300 rigs across the country, Saudi Aramco has suspended 22 rigs, with at least 6-9 to be permanently released, focusing attention on expanding gas output rather than crude oil.
- Kuwait has contracted some of the canceled Saudi rigs, keeping demand for drilling higher than the historical average of 130 rigs across the Middle East, at some 155-160 jackups.
6. Spain's Solar Bonanza Creates Headache for Renewables Investors
- In stark contrast to most European countries, Spain's breakneck expansion of renewable capacity (particularly solar) is now creating problems for investors as historically low electricity prices eat into developers' returns.
- After the almost €300 per MWh peak in March 2022, Spanish electricity prices have dropped by approximately 90% to a multi-year low of €14 per MWh in April, buoyed by record solar generation over the past months.
- Given the huge upfront costs involved in building solar power plants as well as rising interest rates lifting borrowing costs, aggravated by limited export outlets in neighboring France and Portugal.
- Consequently, the pace of new solar capacity buildouts contracted by almost a third year-over-year, just as solar generation soared 26% compared to May 2023, currently accounting for 15% of Spain's electricity output.
7. US Natural Gas Outlook Changes Dramatically into Summer
- Depressed natural gas futures in the US have given way to a much more bullish outlook on Henry Hub thanks to strong domestic power generation demand and risks of stronger-than-usual hurricanes over the summer.
- Henry Hub futures have surpassed the $2.5 per mmBtu mark in the second half of May, a more than 50% increase month-over-month, and remained above the threshold despite a bigger-than-expected US inventory build this week.
- The EIA expects US natural gas demand from electricity generation to match 2023 record levels of 44.7 BCF/day, as gas remains more competitive than coal, soaring in outright figures despite higher renewables penetration.
- Total US natural gas-fired production capacity has increased by 19% since 2014, rising to 79 GW, whilst generation has grown 60% thanks to a marked improvement in efficiency, with the average capacity factor of CCGT plants rising 10 p.p. to 59%.