The Shale Daily Update – 5.5.2020

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10 Things You Should Know About Oil and Gas Today

The Big Story

The Big Story today turns out to be a story that is not happening after all. Last week, Texas Railroad Commissioner Ryan Sitton introduced a proposed order to limit Texas oil production to 80% of October 2019 levels, and it was put on the agenda for today's meeting of the Railroad Commission (RRC).

Yesterday, after both RRC Chairman Wayne Christian and Commissioner Christi Craddick had made it clear that they would not vote to approve the order or any other proposal related to prorationing at this time, Commissioner Sitton had the proposal taken down. Thus, today's RRC hearing will basically be a non-event.

TIPRO President Ed Longanecker, was happy to see the plan taken down, saying that "Based on the significant reduction in capital expenditures and projected decline in domestic production this year without a mandatory curtailment, it’s evident that the market will continue to work faster and more efficiently than any government intervention ever could." The anecdotal evidence available indicates that he is correct in that assessment.

In other news, crude prices rose on Monday and are up again in early trading on Tuesday based on indicators that global supply of oil is dropping more rapidly than anyone anticipated and that global demand is beginning to return as many nations move to reopen their economies. At the time of this writing, WTI, which just two weeks ago traded as low as NEGATIVE $40/bbl, was trading above $25/bbl. Still way too low, but at least it's in positive territory.

But the failure of the RRC to move ahead on production limits won't stop the North Dakota Industrial Commission from hearing a similar proposal at its May 20 meeting.

Sergio Chapa reports in the Houston Chronicle that current market conditions have caused Sempra Energy to delay the final investment decision in its proposed LNG export terminal based in Port Arthur.

Excerpt:

Although more than half of the proposed facility's production has been sold and a general contractor had already been chosen, Sempra said Monday that market conditions are prompting the company to push back a final investment decision to some point in 2021.

With its Cameron LNG export terminal in Louisiana now in commercial operation, Sempra made $760 million in the first quarter, a 72 increase over the $442 million it made during the same period a year earlier. Revenue rose 5 percent to $3 million from $2.9 million one year earlier.

If you are curious about the ins and outs of crude storage, Michael Lynch does a good job of explaining the details in this piece at Forbes.

Permian Basin producer Parsley Energy had a very solid earnings report yesterday, as detailed in this story at Seeking Alpha.

UBS joins Goldman Sachs in raising its oil price forecasts for 2020 and 2021. Excerpt:

UBS expects a pick-up in oil demand as virus-hit economies relax lockdowns and travel restrictions ease this month, with production to be subdued on the backdrop of current low prices and aggressive capital spending cuts by oil and gas producers.

"We therefore expect the oil market to be balanced in third quarter and undersupplied in fourth quarter, and Brent to recover to $43 per barrel by end-2020 and to $55 per barrel by mid-2021," UBS analysts wrote in a note on Tuesday.

Anderson, Anderson & Brown anticipates that the impacts of the COVID-19 pandemic will significantly slow the pace of mergers and acquisitions in the energy sector for the rest of this year.

But it won't be killing all activity entirely, as this story in today's Houston Business Journal details. Excerpt:

Houston-based Quintana Energy Services Inc. (NYSE: QES) has inked a merger agreement with Wellington, Florida-based KLX Energy Services Holdings Inc. (Nasdaq: KLXE).

The deal comes shortly after Quintana received a delisting warning from the New York Stock Exchange, KLX named a new CEO and both companies announced cost-cutting measures that included job cuts.

The all-stock deal, which is expected to close in the second half of 2020, will create a Houston-based onshore oil field services company with more than $1 billion of pro forma fiscal year 2019 revenue, according to a May 3 press release. The combined company will retain the KLX Energy Services name and remain listed on the Nasdaq under the ticker symbol "KLXE."

The Louisiana State Legislature is considering a bill that would reduce taxes on the oil and gas industry there, and some local officials are none to happy about it. Excerpt:

House Bill 506 would reduce the severance tax rate by a half percent each year for the next eight, taking an estimated $151.4 million out of state collections over the next five years.

That is money that local government, in particular, cannot afford to lose, said Guy Cormier, the executive director of the Louisiana Police Jury Association who previously had been president of St. Martin Parish for 14 years. Parishes receive about 20% of the severance income and use that money to help fund law enforcement and other local services.

That's all for today.