The Suppliers, Part I:  A Merger of Equals

The Suppliers, Part I: A Merger of Equals

Following the massive losses recently announced by the world’s three largest oilfield suppliers—Schlumberger, Halliburton, and Baker Hughes—this year’s crushing events are just the latest blow to service providers both large and small facing challenges that originally began in 2014. For those now treading water in this no-mercy environment, few if any are hopeful for a lifeline in the form of another shale boom. Instead, these hired hands of the industry are consolidating, embracing new technologies, creating their own opportunities, and even pivoting their oil patch skills to areas they view more promising for the long term.

In Part I of our new series The Suppliers, RMR looks at consolidation within a subsect of the nation’s oil and gas industry that remains vital to upstream, midstream, and downstream operations. We’ll start with upstream because that’s where it all begins.

NexTier Oilfield Solutions

NexTier is a leading provider of integrated completions focused on US land. We deliver safe, efficient and innovative services that enable our customers to win by accelerating production while generating leading returns.

nextierofs.com

 C&J Energy Services and Keane Group  

To look forward, you have to first look back.

According to financial pundits, the combination of C&J and Keane last year marked the true genesis of consolidation in the onshore oil and gas services market, particularly among publicly traded companies. In a merger of equals, C&J and Keane—both pressure pumping big dogs—merged in a $1.8 billion, all-stock deal that saw a name change (Houston-based NextTier Oilfield Solutions), a combined well completion and production services company with 2.3 million hydraulic fracturing horsepower, and a more competitive landscape in terms of price and service offerings vs larger service players.

Since the merger, NextTier this year has made difficult but promising financial decisions to stay the course that include divesting its well support services business in March; leveraging the latest surface, subsurface and fluid system technologies, and making the ubiquitous cost, staff, and budget cuts rife among others in its league. The company will announce 2Q earnings next week.

KLX Energy

KLX Energy Services is the oilfield’s most prepared service provider: always ready to help operators get ahead no matter what the challenge. With proprietary technology, proven experts and strategic locations near you—nobody else brings you true Next Level Readiness.

www.klxenergy.com

KLX Energy Services and Quintana Join Forces

On a smaller scale, KLX and Quintana—two forces heralding asset-light oilfield solutions that include drilling, completion, and two of the largest fleets of coiled tubing and wireline assets—have now decided to exchange nuptials. The all-stock marriage will assume the KLX name and move headquarters to Houston. Upon completion of the merger, the company expects to see cost synergies in excess of $40 million within a year and will continue eyeballing other consolidation opportunities within the oilfield service industry.

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The New Pipeline Landscape vs the Law of Diminishing Returns

The New Pipeline Landscape vs the Law of Diminishing Returns

The nation’s pipeline projects this year have met with volcanic reactions that canceled three majors in the Eastern Atlantic, stalled several others, and turned upside down at least three already in service. These are the facts at hand, which now bring even greater challenges to natural gas and power utilities in need of more fuel to meet consumer demand; refineries that require feedstock; petrochemical facilities that depend on supplies to produce raw materials used globally; and U.S. producers who transport oil and gas to end markets. If the current pipeline landscape subsists, the aftereffects are predicted to bring seriously diminishing returns in an era of carbon-neutral goals.

Rystad Energy

Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Their products and services cover energy fundamentals and the global and regional upstream, oilfield services and renewable energy industries, tailored to analysts, managers and executives alike. 

www.rystadenergy.com

The nation’s pipeline projects this year have met with volcanic reactions that canceled three majors in the Eastern Atlantic, stalled several others, and turned upside down at least three already in service. These are the facts at hand, which now bring even greater challenges to natural gas and power utilities in need of more fuel to meet consumer demand; refineries that require feedstock; petrochemical facilities that depend on supplies to produce raw materials used globally; and U.S. producers who transport oil and gas to end markets. If the current pipeline landscape subsists, the aftereffects are predicted to bring seriously diminishing returns in an era of carbon-neutral goals.

According to Rystad Energy, if the Dakota Access Pipeline (DAPL) is shut down in August following a July court mandate to halt operations and empty its line of Bakken crude oil, an initial 300,000 BPD will have to be transported by rail. The DAPL is the largest outbound Bakken pipeline, which means other pipelines and refineries will need to absorb at least 900,000 BPD. And as far as those “other” pipelines, the DAPL ruling came on the heels of a court-ordered closure earlier in July of the Bakken’s Tesoro High Plains Pipeline that’s been in operation for 67 years. As curtailed volumes in the Bakken are expected to come back online later this year, Rystad foresees significant bottlenecks ahead with the lack of primary exit routes. This suggests more rail, more trucks, more flaring, and more emissions. Again, diminishing returns.

Rystad also predicts gas output from the Permian will rebound during the second half of this year and is expected to return to record levels by late 2021. That’s the good news. The bad news is that regulatory obstacles and belt-tightening have delayed or put on hold several pipelines to feed supplies to the East Coast, Gulf Coast LNG facilities, and Mexico. With the need for new gas takeaway projects from the Permian beginning in 2023, Rystad estimates another period of increased gas flaring citing it’s highly possible that any new pipelines will be approved too late, resulting again in a situation with insufficient infrastructure.

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Like a Phoenix in the Oil and Gas Industry, Alaska Rises Again

Like a Phoenix in the Oil and Gas Industry, Alaska Rises Again

Major operators over the years have come and gone from the nation’s Last Frontier, yielding their hard-won oil and gas assets to another generation of upstream and midstream explorers with other ideas to reap the bounty of Alaska’s prolific natural resources.  And the times, boy, are they a-changing.

News from Alaska, and the next-gen players on board to capture the state’s resources, has come steadily over the last few months as major producers back out, sell off, and acquiesce to independents moving into this territory with their own ideas and plans, and expanding their footprint in one of North America’s largest oilfields. But there’s much more activity happening here than new drilling.

Here’s a rundown of the latest energy-related activities and projects either proposed or planned, or already happening, in the Land of the Midnight Sun.

The Alaska LNG Project

This massive undertaking now has won the issuance of rights-of-way permits for the first 230 miles of what will be an 870-mile pipeline to flow natural gas from Prudhoe Bay to a newbuild liquefaction and export terminal southwest of Anchorage. In addition, FERC has granted Alaska Gas Development a 10-year deadline to begin operating both the pipeline and the LNG facility. Upon completion, the Alaska LNG facility will be capable of exporting 20 MTPA. Prudhoe Bay produces on average 3.5 BCFD of natural gas.

Hilcorp Energy and the Prudhoe Siren Song

Among the largest acquisitions this year, Houston-based independent Hilcorp Energy in early July more than doubled down on its oil and gas interests in Alaska with a $5.6 billion acquisition of BP’s upstream and midstream assets. The first part of this megadeal makes Hilcorp the second-largest producer in the state and the key operator of the Prudhoe Bay oilfield. The second part includes a 50% ownership in the 800-mile Trans Alaska Pipeline System.

The New Kid in Town

Australian-based 88 Energy also is betting on Prudhoe Bay with its recent acquisition of the 135,000-acre Peregrine Project on the North Slope, where it looks to drill two, low-cost wells in 2021 with the aim of unlocking the next major oil discovery there. The company intends to explore a farmout deal with other partners, estimating the two wells will cost $15 million. 88 Energy’s Project Icewine includes 480,000 contiguous acres in Prudhoe Bay, as well as the award of 15,312 acres in Yukon Gold.

Speaking of Yukon Gold, the Donlin Project Is Back Apace

Alaska-based Donlin Gold, which looks to mine a parcel of Yukon land consisting of one of the world’s largest known gold deposits, took another step forward earlier this year to construct a massive, integrated mining infrastructure that will include a 315-mile natural gas pipeline. The gas will be used to power mining opeations and eliminate additional barge traffic hauling diesel fuel in the Cook Inlet. The project took a breather in April due to COVID-19 but mining slowly has returned.

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The Operators:  PILOT LNG

The Operators: PILOT LNG

Take a moment and imagine this:  The world’s deep-sea shipping fleet includes more than 60,000 marine vessels. Most are powered by heavy fuel oil to transport all kinds of commercial goods, dry cargo, and liquid fuels to destinations across the globe. Among them, the Very Large Crude Carriers–the largest manmade structures on Earth–exhaust a whopping 55 tons of heavy fuel oil every day.  For the maritime industry, a dramatic sea change occurred earlier this year in the form of the International Maritime Organization (IMO) mandate to dramatically cap the heavy fuel sulfur those big boats burn. And the aftermath is not only transforming the world’s shipping fleet but opening new opportunities in the LNG industry.

PILOT LNG

Pilot LNG was founded in mid 2019 by a team of experienced executives with complementary backgrounds across the natural gas, LNG midstream and downstream sectors. With a firm belief in a set of core values and a dedication to creating a customer-driven company that operates with excellence as its standard and innovation as a requirement, the Pilot LNG team provides the natural gas/LNG market a full suite of midstream services and solutions, custom designed to meet our customers’ specific requirements.

pilotlng.com

As early as last year, ship owners and ship builders alike set upon an accelerated track to retrofit existing marine vessels and manufacture new ones that use LNG as bunker fuel—including those that transport it—in preparation for the stringent new IMO regulation. LNG-fueled ship orders have increased a staggering 50% from February 2019 to February 2020 to comply. As a point of reference, the world’s ports currently offer truck-to-ship and ship-to-ship bunkering transfer options along with shore-to-ship terminals in numerous countries, including the U.S. But there lie major disadvantages to each, including limited capacity of trucks and required road connections; high investment costs for ship-to-ship methods that can only serve small vessels; and limited berth access for larger ships at onshore terminals.

Houston-based PILOT LNG offers another idea—actually, two—with its initial bet on developing the first dedicated bunker fuel terminal on the Gulf Coast that would serve Galveston, Houston, and the Texas City port complex. Only this terminal will be floating.

Founded in 2019, PILOT’s Galveston LNG Bunker Port project will be designed around floating liquefaction technology (FLNG) on Pelican Island. The company’s proposed FLNG liquefaction terminal follows PILOT’s installation of the world-first floating storage and regasification terminal in Argentina. The $500 million Galveston LNG bunker project is expected a final investment decision in the second half of 2021 with operations beginning in 2024.

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