Is confidence returning to oil & gas?

By Jonathan Jackson. Published at Mar 12, 2019, in Energy

The release of the second annual Industry Confidence Report commissioned by the Australasian Oil & Gas Conference & Exhibition (AOG), points to a return to confidence for many oil and gas professionals.

Of the 700 oil and gas representatives from senior and operational management, engineers, consultants, contractors and business development managers who were surveyed, 90% found that the current health of the Australasian oil and gas industry was either stable or improving.

The survey also found that 76% of respondents believed exploration would remain the same or improve despite many major projects coming online and fewer large fields actively being sought.

“As AOG represents all areas of the business, the Industry Confidence Report is a great gauge of the health of the whole industry across the entire oil and gas value chain,” said Bill Hare, AOG event director.

There is certainly a lot of activity happening among ASX juniors in this sector that would support the notion of increased confidence.

Red Emperor (ASX:RMP) along with 88 Energy (ASX:88E) look to be releasing news on on almost daily basis with regard to the Winx-1 exploration well.

Regular Finfeed readers would know that the well, situated on the North Slope of Alaska, has recently delivered multiple potential pay zones identified in the Nanushuk Formation topset play (primary targets) and Torok Formation (secondary targets).

Winx-1 intersected all pre-drill targets safely and efficiently, which led to RMP's share price rising 68% at the time.

Talon Petroleum (ASX:TPD) is another oil and gas explorer injecting some confidence into the market. Its pending acquisition of EnCounter Oil in the North Sea is expected to shift the company's fortunes.

The acquisition includes two high quality exploration opportunities and follows a farm-in agreement to earn a 10% interest containing a 45mmboe discovery.

“The transaction with EnCounter Oil is a significant step forward in Talon’s UK North Sea strategy. Talon is extremely pleased to be executing this deal with EnCounter Oil, with the company acquiring both the highly-prospective Skymoos and Rocket prospects," said Talon MD Matt Worner.

"Talon is also pleased to welcome both Graham Doré and Paul Young, two highly experienced oil and gas executives, who bring outstanding UK North Sea experience, and will play a pivotal role in Talon delivering long-term shareholder value from its growing North Sea portfolio."

What about the oil price?

Confidence in the oil price is a mixed bag at the moment..

Saudi Arabia is set to keep its April crude oil exports at below seven million bpd, signaling that OPEC’s biggest producer is set to do ‘whatever it takes’ to rebalance the market and support oil prices.

According to data compiled by Bloomberg, Saudi Arabia’s crude oil exports to the US are falling sharply, with shipments standing at just 1.6 million barrels near the end of February, versus 5.75 million barrels a year ago.

"We could see Saudi oil imports declining to zero into the U.S. Gulf Coast,” Andy Lipow from Lipow Oil Associates said. “OPEC and non-OPEC members feel prices are too low, and they will do what it takes to put the market back in balance."

That is unlikely to happen, but you get a sense that everything that can be done will be done to increase prices.

Oil did finish the week lower last week, with many analysts blaming the global economic slowdown. Crude fell 1%, settling at US$56.07 after weak US jobs report.

The Saudi news should support a slight recovery.

Given all of this, big energy stocks haven’t reacted too positively to higher oil prices either. According to Barrons, the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca:XOP) has risen just over 6% compared to oil’s near 25% gain (over the past 12 months). Oil Major, Exxon Mobil (NYSE:XOM) was hit with a downgrade recently, though, Chevron (NYSE:CVX) appears to be in better shape.

Perhaps the juniors are worth a good look in this climate.

Confidence is not all about price

Innovation and moving into renewable has also piqued the interest of all explorers and producers.

According to the Industry Confidence Report, which will be released to coincide with the opening of AOG at the Perth Convention & Exhibition Centre on Wednesday, 76% of respondents believed exploration would remain the same or improve despite many major projects coming online and fewer large fields actively being sought.

The survey found that increasing investment in new technology and innovation was the highest priority for the respondents’ organisations over the next three years (narrowly followed by increasing collaboration with other industry organisations).

Almost 45% of respondents classified new technology investment as either a high priority or their highest priority, with just 23% considering it a low or non-existent priority.

Renewables were also a prominent talking item amongst respondents with 81% agreeing that oil and gas industry’s movement into new energy sources (such as renewables, remote energy sources, and alternatives to traditional energy sources and fossil fuels) was a positive move.

Only 7% surveyed disagreed with this direction, while the remaining 12% per cent were unsure of the impact.

Many respondents noted that becoming involved with and using renewable sources of energy provided future avenues of growth, which is clearly in line with the action of the majors.

BP, Exxon, Chevron, Total SA and Royal Dutch Shell are investing billions of dollars in renewables in their quest to dominate clean energy supply chains.

Exxon has committed US$1 billion a year to research into low carbon technologies. Royal Durtch Shell (AMS:RDSA) has committed to spend US$2 billion on wind power, biofuels and electric cars as it, like Exxon, bows to shareholder pressure by setting new company climate change target.

AOG opens on 13 March 2019. Find out more and register free at www.aogexpo.com.au.

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