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US Energy Review
US oil and gas firms have announced more mergers in recent weeks, while the Biden Administration suspended oil and gas leases in Alaska’s Arctic National Wildlife Refuge and suffered a setback in court in its effort to pause lease sales for oil and gas production on federal lands and waters.
Meanwhile, US oil and gas producers continue to keep capital discipline and are not rushing to boost drilling activity despite the fact that oil prices have rallied in recent weeks and the US benchmark, West Texas Intermediate, hit $70 per barrel in the middle of June. The US oil and gas sector has also seen job additions recently, with employment rising from the lows of last year.
Mergers Wave
In recent weeks, several US oil and gas firms decided to merge to combine their strengths in order to generate more free cash flow and return more cash to shareholders.
At the end of May, Cabot Oil & Gas Corporation and Cimarex Energy Co announced that they had entered into a definitive agreement to combine their businesses in an all-stock merger of equals. The terms of the share exchange ratio reflects an enterprise value for the combined company of approximately US$17 billion.
The deal will see the combination of Cabot’s 173,000 net acres in the Marcellus Shale and Cimarex’s approximately 560,000 net acres in the Permian and Anadarko basins, giving the new business a multi-decade inventory of highreturn development locations in the premier oil and natural gas basins in the United States.
“The combination of Cabot and Cimarex will create a free cash flow focused, diversified energy company with the scale, inventory and financial strength to thrive across commodity price cycles,” said Cabot’s chairman and chief executive Dan O. Dinges.
In another deal, Colgate Energy Partners III, LLC said in early June it would buy a majority of the assets owned by Luxe Energy LLC in an all-stock transaction. This combination creates one of the largest private companies in the Permian Basin, with around 57,000 net acres, around 45,000 Boepd and 4 rigs running as of 1 June.
“This transaction enhances our already bestin-class balance sheet and puts us in a position of strength as we look to opportunistically pursue further consolidation,” said James Walter, Co-Chief Executive Officer of Colgate.
on 6 January 2021, and subsequently issued 10-year leases on nine tracts covering more than 430,000 acres.
A week later, Colgate Energy said it had agreed to purchase from Occidental around 25,000 net acres and 10,000 Boepd in Reeves and Ward Counties, Texas, for approximately US$508 million.
Meanwhile, Independence Energy and Contango Oil & Gas Company announced they had entered into a definitive agreement to combine in an all-stock transaction. The combined company will have an initial equity market capitalisation of approximately US$4.8 billion and enterprise value of around US$5.7 billion. The combined business will be headquartered in Houston and expects to operate under a new name and under a new ticker symbol. “The Department is notifying lessees that it is suspending oil and gas leases in the Arctic Refuge, pending the review, to determine whether the leases should be reaffirmed, voided,
Employment in or subject to additional mitigation measures,” the the US oil and gas Interior said. sector is recovering Indigenous and from the lows seen environmental groups applauded the suspension in the summer of last year of the Arctic Refuge leases, thanking President Joe Biden and Interior
Secretary Haaland “for taking this step toward protecting the Arctic Refuge from oil activities.”
Alaska’s Governor Mike Dunleavy criticised the Administration’s move to suspend the leases, saying that “Our leases for oil and gas are valid and cannot be taken away by the federal government.”
US Administration Vs Oil Leases
While the US shale patch was looking at ways to consolidate in order to boost shareholder value and free cash flows, the US Administration suspended oil and gas leases in Alaska’s wildlife refuge which the previous Administration had sold during its final days in office.
The US Department of the Interior suspended on 1 June all activities related to the implementation of the Coastal Plain Oil and Gas Leasing Program in the Arctic National Wildlife Refuge, pending completion of a comprehensive analysis under the National Environmental Policy Act (NEPA).
Under the previous administration, the Bureau of Land Management (BLM) held a lease sale “I oppose this assault on Alaska’s economy and will use every means necessary to undo this egregious federal overreach. Alaska does responsible oil and gas development in the Arctic under stricter environmental standards than anywhere else in the world. Yet the federal government is focused on trying to stop our ability to produce oil and gas,” Governor Dunleavy said.
In mid-June, Judge Terry Doughty of the U.S. District Court for the Western District of Louisiana issued a preliminary injunction, blocking the Biden Administration’s pause on oil and gas lease sales on federal lands and in federal waters. The preliminary injunction was granted to Louisiana and 12 other US states that had sued the Administration over the moratorium on federal oil and gas lease sales.
The judge’s order directs the Department of Interior to resume sales, including planned future lease sales in the Gulf of Mexico and Alaska’s Cook Inlet.
“This ruling is a repudiation of the Administration’s policies on fossil fuel development on federal lands. Interior is expected to publish a report on the program in the coming days and has released a statement indicating they are reviewing the ruling and plan to follow its direction,” said Tim Tarpley, SVP Government Affairs & Counsel, who analyses federal policy for the Energy Workforce & Technology Council.
Following the Louisiana judge’s ruling, the American Petroleum Institute (API) urged the Administration to follow the court’s order.
“The federal leasing pause is harmful to our nation’s national security, environmental progress and economic recovery,” said Kevin O’Scannlain, API Vice President of Upstream Policy.
“We are pleased to see the court ruling that natural gas and oil leasing must resume on federal lands and waters, and we urge the administration to move expeditiously to follow the court’s order and lift the federal leasing pause. Now is the time for the administration to put an end to this ‘import more oil’ policy that threatens American jobs and deprives state and local communities of much-needed revenue, all while likely increasing emissions and the risks of climate change,” O’Scannlain added.
The US Continues To Add Upstream and Oilfield Services Jobs
Employment in the US oil and gas sector is recovering from the lows seen in the summer of last year, when the crash in oil prices and the global demand destruction in the pandemic forced operators to significantly scale down drilling activity and optimise headcount costs.
US energy technology and services sector employment increased by an estimated 9,707 jobs in May, according to preliminary data from the Bureau of Labor Statistics (BLS) and analysis by the Energy Workforce & Technology Council. The 1.6% growth in May comes after the industry added nearly 17,700 positions in March and April. According to BLS data, the sector has added more than 27,000 jobs over the past three months after hitting a pandemic low of 591,413 jobs in February. Employment in the sector is down 13.8% since the onset of the pandemic in March 2020, the Council said.
Meanwhile, upstream oil and natural gas employment in Texas expanded by 1,600 jobs in May compared to April, according to data from the Texas Workforce Commission cited by the Texas Oil & Gas Association. The job count in May stands 7.9% higher, or 12,500 more, than that of the low point in September 2020. Total upstream employment in Texas is 170,000 jobs, which pay among the highest wages in the state, the association noted.
