Sentimental? No, not nearly. Exxon got the Pioneer deal done with the worst government requirements ever announced. It is now starting to reorganize its holdings. What that means is the legacy part of Pioneer, the conventional drilling that put them on the map appears to be going away. Exxon announced the pending sale of up to at least $1 billion in conventional Permian production that was once the heart of Pioneer. It always kills me when somebody says they want to buy some old field from Exxon and [that] Exxon wasn’t paying any attention to it at all. I disagreed because someone at Exxon was paying attention to it, and it was important to someone at Exxon. But when combinations like these are made, there is often fallout. This is $1 billion worth of properties that many small E&P companies have dreamed about owning for years. We look forward to finding out what conventional production and acreage is worth these days, and I guess we’re going to learn that eventually. This is one reason why drilling and frac activity slows down following a business combination of this scale. The first thing that combined companies have to do is decide what they’re going to keep and how much they’re going to spend on the things they don’t want to keep. So, this is positive perspective—Exxon is well on its way to integrating Pioneer, shedding unwanted or unneeded properties and resuming activity on the areas that are most important. Mergers and acquisitions are a rite of passage and a process that benefits the entire industry.
Production Growth. It is a fine balancing act. We have found out that very small amounts of physical oil on the margin can be very volatile. The U.S. set global all-time records for the most and fastest production growth ever. That was just a couple of years ago. And for the first time in a long time, U.S. production actually matters on the world stage. And now, OPEC+ is expected to drop production by 1 million barrels. At the same time, several non-OPEC countries will grow production by 1.4 million barrels. And it looks to be continued. The United States is expected to grow production by 400,000 barrels per day, even with a continuously declining rig count. Efficiencies. And with the introduction of AI capabilities throughout the work and value stream, they will likely continue. Of course, this does put some ceiling on prices! In a market where almost everyone has been calling, for well over a year now, that oil prices just have to move up, after a while you have to think the market has adjusted.
Breaking Records. We are good. Everyone should realize this. Being good has downsides as well. Last year, we drilled 6,000 wells in the Permian Basin, which is now producing ~5.7 million barrels per day. And we did it with 100 fewer rigs than we operated in 2018-2019, before COVID. Not only did we set records with fewer rigs, but we also set a new Permian record of 10,032 feet per well. Think of the operating efficiency gains that have allowed us to do that in just a few years. That amounts to 11,453 miles of lateral holes, twice any other basin. So, the Permian is the most active, critical, and productive of the shale basins, facts we already know. But understanding the efficiencies and impacts of the technologies brought to bear in the last few years is hard, since it seems to move so very fast. Now imagine 2-3 years from now when AI and quantum computing are much more broadly used.
Morgan Stanley’s 20 Top Stock Picks. One was energy. One. The research analysts picked their 20 top conviction picks within each industry. The winners? Schlumberger was the only company to make the list. And apologies to SLB, but the company was referred to as Schlumberger, not SLB. Old habits die hard. Stock specific risk is high for energy, financials, and communications. Congratulations, SLB.
—Jim
Subscribe to Jim Wicklund’s full e-newsletter, “Things I Learned This Week at…,” distributed via email, by signing up for free at this webpage: https://www.pphb.com/newsletters. Jim is Managing Director / Client Relations and Business Development for investment banking firm PPHB. Leveraging deep industry knowledge and experience, Houston-based PPHB has advised on more than 180 transactions exceeding $11 Billion in total value. PPHB advises in mergers & acquisitions, both sell-side and buy-side, raises institutional private equity and debt, and offers debt and restructuring advisory services. The firm provides clients with proven investment banking partners, committed to the industry, and committed to success.
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