United States: Big oil companies enter 2024 strengthened by the industry

The increase in demand for Petroleum As global economies recover from the pandemic recession it has stoked buyer enthusiasm.

The oil companies Americans Exxon Mobil, Chevron Corp and Occidental Petroleum They made acquisitions worth a total of US$135 billion in 2023. ConocoPhillips, for its part, closed two large transactions in the last two years.

The great prize of this negotiation is the largest shale oil deposit in USAthe Permian Basin, West Texas and New Mexico. The four companies have taken control of 58% of future production.

Each aims to pump at least 1 million barrels per day (bpd) from the field, which is expected to produce 7 million bpd by the end of 2027.

And more operations are on the horizon. Three-quarters of energy executives surveyed in December by the Federal Reserve Bank of Dallas They expected more oil operations worth $50 billion or more to emerge in the next two years.

Endeavor Energy Partnersthe largest private producer of Permian shale, is studying a sale that could further concentrate US shale oil production.

““Consolidation is actively changing the landscape.”says Ryan Duman, director of upstream research for the Americas at energy consultancy Wood Mackenzie. “A select few companies will determine whether (production) growth will be strong, more stable or somewhere in between.”

The consolidation will have indirect effects on the oilfield service providers and pipeline operators. The companies that are in charge of drilling, hydraulic fracturing and transporting sand, oil and gas to market are entering an era of fewer customers with more power over prices.

Consolidation is good for producers, but it does not seem to help service companies at all, because it will reduce their margins as existing contracts are renegotiated.

The operators of pipelines and gas pipelines are facing their own wave of consolidation as fewer new oil and gas pipelines are approved and built. Expansions to existing pipelines in the Permian Basin will provide some relief, but Permian pipeline capacity is estimated to be at 90% by mid-2025.

Take care of cash

The latest acquisitions illustrate the search for oil reserves and untapped and lower-cost gas from oil companies.

Among the main operations of 2023, Exxon’s US$59.5 billion offer for Pioneer Natural Resources and the purchase of Denbury Inc for US$4.9 billion stand out.

Chevron offered 53 billion for Hess and bought its oil rival PDC Energy for 6.2 billion. Occidental will pay 12 billion for CrownRock.

Helped by its strong stock prices, most of the year’s big acquisitions were stock swaps, not the big cash outlays that would endanger buyers’ balance sheets if oil prices fell as they did in 2016 and 2020. Exxon , for example, has about $33 billion in cash, more than six times the amount it had four years ago.

Rising interest rates in 2023 made paying for acquisitions with shares more attractive to investors than financing new capital projects. renewable energy cash.

Offshore wind projects in the US and France have been canceled due to rising interest rates and supply chain costs.

Producers have also recognized that the US move towards renewable fuels, electric vehicles and greater energy efficiency will reduce the consumption of fossil fuels and put companies with high production costs in trouble.

Global oil demand increased by about 2.3 million barrels per day (mbpd) in each of the last two years, to 101.7 mbpd. This increase reduced global reserves, which helped support prices while OPEC and its allies kept production limited.

Wood Mackenzie expects oil production to rise by an average of 250,000 bpd annually over the next five years, half the amount of the previous five years, as oil majors focus more on increasing cash flow than production. Growing slowly helps companies with untapped reserves control expenses and increase margins.

The consolidation has led US antitrust regulators to ask Exxon and Chevron additional information about their purchases, which has delayed the closing of operations.

Both predict they will receive approval, pointing to the size of the U.S. oil market and the aggressiveness of smaller rivals as signs that competition will remain strong.

The appearance of less oil producers larger companies focused on prolonging the longevity of their fossil fuels It can put companies in greater tension with governments that prioritize switching to clean energy sources.

Meanwhile, global oil prices are expected to remain stable in 2024, after reaching an average of US$83 per barrel in 2023, compared to US$99 in 2022. Analysts see oil in 2024 trading between US$ 70 and US$ 90 per barrel, above the average of US$ 64 per barrel in 2019.