This quarter’s oil and gas M&A activity; rising US oil production and the disconnect at the pump; discovery of new oil field in Kuwait, and a few hints at what’s to come in our next premium newsletter …
This week, we’re going upstream, where we’ve got a lot of news and views, starting with an interesting report on upstream deal activity for Q2 2013 that shows a drop in mergers and acquisitions over the same period last year.
According to a report from PLS Inc. and Derrick Petroleum Services, global M&A for this quarter was $24.9 billion, with 141 deals, down 12% from the same period last year, but up 19% from Q1 this year. For Q2 2012, we say 173 deals worth $28.4 billion. For Q1 2013, we saw 117 deals worth $20.9 billion.
But nothing so far compares to Q4 2012, which saw 223 deals totaling a whopping $138 billion.
Altogether, 2013 has been slow for M&As, with a first-half total deal value of $45.8 billion—the lowest since 2007, with the exception of the 2009 aftermath of the financial crisis.
What does it all mean? According to PLS, in comparison to 2009, M&A activity is on the upswing, “equity markets have been rising nicely, oil and gas prices are relatively stable and there is plenty of deal inventory.”
So why the lack of major mergers and acquisitions right now? Buyers are taking a conservative stance, PLS says, coming off a high of intensive investment in new plays. Companies went on an acreage-buying binge, and now they’re focusing on developing that.
Meanwhile, domestic oil production is rising. New research from former oil industry executive Leonardo Maugeri of the Harvard Kennedy School claims that domestic shale oil production could rise to 5 million barrels per day by2017, while the Energy Information Administration (EIA) estimates 10 million barrels per day between 2020 and 2040. Maugeri predicts that the US will have 100,000 producing wells in North Dakota and Texas by 2030 (90,000 more than we have now).
In terms of US oil production, the question (every summer) is why US consumers don’t seem to be benefitting from higher oil production at the gas pump. Earlier this week, Chairman of the Senate Committee on Energy and Natural Resources Ron Wyden (D-Oregon) interrogated oil experts on this question. After all, posits Wyden, crude oil prices comprise 67% of the cost of a gallon of gas, so if we have more domestically available crude, which is cheaper, combined with flat or falling gas demand, why are gas prices not falling?
Their answer was that US consumers ARE benefitting from higher oil production—they just don’t know it. The rationale is that global markets, rather than a domestic rise in production, determine crude prices, and thus gas prices.
“Virtually every group that I know of that’s ever studied product markets believes that product prices are being set in the global market,” Energy Information Administration head Adam Sieminski responded to Wyden.
So much for expectations that increasing domestic oil production will usher in gas prices that are below $3.00 a gallon. This, the experts agreed, is likely a thing of the past.
Also upstream, we note the discovery of a new oil and gas field in Kuwait, near the prolific Manageesh oil field. The find was announced by state-owned Kuwait Oil Co. which says it’s too early to estimate reserves here; but we’ll be keeping a close eye on this. OPEC-member Kuwait says it has about 100 billion barrels of crude reserves (without this new find), and currently produces about 3 million barrels per day.
This week’s special report comes from the Executive section of our Premium publication and looks at Bosnia and why we believe this is a country oil & gas investors should have on their radar. The report looks at the country’s history, recent developments, geopolitics of the region, exploration and discoveries and why we believe now is a good time for investors to start getting excited about the possibilities here. Click here to receive our free weekly reports
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Here’s what’s inside:
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This week’s four Intelligence Reports look at the following topics:
• Ukraine: Unexpected Oil Find, Major Gas Interest
• Again, We Bring You Oryx
• Watch as Russia Descends on New EU Member Croatia
• Russia Prepares To Liberalize LNG Exports
Each report looks at the bottom line, analyzes the situation and makes recommendations to subscribers as to how best play the situation for profit or risk management.
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That’s it from us this week – I hope you find the below report on Bosnia interesting and have a great weekend.
Bernstein Research estimated that the marginal cost of oil production - the cost of production for the most expensive new fields - rose to $104.50 a barrel in 2012, up more than 250% from $30 a barrel in 2002.
The most expensive oil fields essentially set the floor of oil prices, worldwide.
So, in 2013, oil will remain expensive, gasoline prices are unlikely to fall under $3 and OPEC is likely to earn $1 trillion as in 2011 and in 2012.
think the American people are being screwed over by big oil.they just want to make ALL they can squeeze out
of us.If Obama was a real Pres. he would put a clamp on them instead of giving them bigger tax breaks.
EIA data show that what I define as Global Net Exports of oil (GNE) have been below the 2005 rate for seven straight years, with the developing countries, led by China, consuming (so far at least) an increasing share of a post-2005 declining volume of GNE.
Regarding Western Hemisphere net oil exports, the combined net oil exports from the seven major net oil exporters in the Americas in 2004 (Canada, Mexico, Venezuela, Colombia, Argentina, Ecuador and Trinidad & Tobago) fell from 5.9 mbpd (million barrels per day, EIA) in 2004 to 5.0 mbpd in 2012.
So far, increasing net oil exports from Canada have only served to slow the post-2004 regional decline in net oil exports. And the US remains reliant on imports for more than half of the crude oil that we are presently processing in US refineries.
Available Net Exports
I define Available Net Exports (ANE) as GNE less Chindia’s Net Imports (China + India). ANE fell from about 41 mbpd in 2005 to 35 mbpd (million barrels per day) in 2012, an average annual decline of close to one mbpd per year in the volume of exported oil available to importers other than China and India.
I examined this topic in the following paper on what I call the Export Capacity Index (not yet updated with 2012 data):