Daily Energy Standup Episode #70 – Pioneer’s Sheffield Predicting $90 to $100 Oil (Brent) – High gas prices could be the new norm for europe – Soft economic landing? – Nope

Highlights of the Podcast

00:00 – Intro
02:36 – Pioneer Sheffield predicting 90 to $100 oil by early summer.
03:42 – Pioneer expects to operate an average of 24 to 26 horizontal drilling rigs and it’s a lot of rig edge did that’s a lot.
08:31 – High gas prices could be the new norm for Europe.
11:06 – The man in charge of how the US spends 400 billion
13:44 – Former Treasury Secretary Admits doubt on soft economic landing looks for Global institutions, for solutions.

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Video Transcription edited for grammar. We disavow any errors unless they make us look better or smarter.

Michael Tanner [00:00:15] What is going on, everybody? Welcome to another edition of the Daily Energy News Standup here on this gorgeous. Tuesday, February 28, 2023. As always, I’m your humble correspondent, Michael Tanner, coming to you from an undisclosed location here in Dallas, Texas, joined by the executive producer of the show, the purveyor of the show and the director and publisher of the world’s greatest website, EnergyNewsBeat.com – Stuart Turley, my man. How we doing today?

Stuart Turley [00:00:40] It’s a beautiful day in the neighborhood.

Michael Tanner [00:00:41] Yeah, No, it it really is. We actually have a great day for natural gas prices. They’re up to $2.70. Lower Price is not doing as well, so. Well, you know I’m I love me some good in a high natural gas prices. So we will cover all of that coming up. Stu also has some incredible stories. I’ll give a quick rundown here. First, we’ve got Pioneer Scott Sheffield predicting 90 to $100 oil by early summer. We’ll see what we’ll see what that one means next. We’ve got high gas prices. Could be the new normal for Europe. It sure looks that way. Stu will cover on what the gas situation in Europe looks like going forward. Next, we have the man in charge of how the U.S. spends 400 billion to shift away from fossil fuels. This is a pretty stark article that’s do a cover about really what’s what’s going on at that government level. Next we have former US Treasury secretary admits doubts on a soft landing looks to global institutes for solutions. That’s just spooky. That’s charming. The header, the picture on the article is spooky. It’s it’s Yeah. You’ll kick it over to me. Then I’ll again cover what’s happening in the natural gas markets were trading currently to 69 oil’s at 7576 we’ll find out API inventories tomorrow but really everyone is focused on the potential rate increase and we have two earnings to cover, both range resources and oxy, both which I thought has some notables. I will cover all that and a bag of chips guys. But first again check us out in the description below www.energynewsbeat.com All the articles that we mention come from our website check it out dashboard.energynewsbeat.com it’s our data news combo again we are hard at work at V2. I’m a little dev meeting the night so it’ll be great to get that move forward a little bit. But again still just check us out www.energynewsbeat.com I’m out of breath Where do you want to begin.

Stuart Turley [00:02:36] Hey let’s start with our buddy pioneer Sheffield predicting 90 to $100 oil by early summer. I love me some Sheffield. He is one of the best, coolest cats in the entire industry and the article says Sheffield in is talking to the analysts and he says we remained highly constructive on oil prices, Sheffield told analysts. I’m still very optimistic that we’ll move back into the 90 to 100 range sometime early this summer as we move in, get away from this 78 to 88 swing and brant prices high.

Michael Tanner [00:03:15] Now this is what everybody does though. They couch their oil price by giving me Brant, which trades at a 7 to $10 premium to West Texas Intermediate, which pioneer and most other companies that produce out of the Permian and get paid off that index not Brant. So I do find it hilarious that, you know, he’s talking about his oil price and he chooses the international benchmark versus the one that sits in his backyard. But I won’t get hung up there. So continue.

Stuart Turley [00:03:42] The the other piece of this is Pioneer expects to operate an average of 24 to 26 horizontal drilling rigs and it’s a lot of rig edge did that’s a lot.

Michael Tanner [00:03:54] That’s a lot of rig edge we need to make that into a T-shirt. I don’t know I’ve never heard that that one before. I mean, Pioneer is probably one of the better positioned companies with their acreage in order to drill. I mean, they have vast. Right. You know, what is probably considered lower tier one at this point, but decent acreage that at these prices, even at $75, make very good economic sense.

Stuart Turley [00:04:17] And ask you this. Yeah, let me ask you this, Michael. It says, citing significant capital savings on a per foot basis of lateral wells in excess of 15,000 feet. Pioneer said it expects to place more than 100 of these extra long wells on production this year. Wow.

Michael Tanner [00:04:38] Yeah. I mean, it’s that’s super interesting. And I think you’re seeing a shift of, you know, a shift into these super long ladders. And we’re talking 15,000 feet is three miles of lateral like I know in the DJ Basin. Oxy is doing some pretty crazy wells that are getting three or four miles. I just saw a permit for a Woodford. Well, up there in Oklahoma that was 26,000 feet of total measured depth. So I think that works out to like four miles. I mean, it’s absolutely incredible still what they’re doing it. I think part of the reason why is because you can in high oil price in. Environments which in which wells are fairly economical and you can really churn and burn this Tier one acreage. The longer you go it, it does. There is a on a well by well basis some economics of scale. By increasing the lateral length, you can increase the lateral length by a thousand feet and see a. Let’s give let’s say for example, a hundred thousand barrel per thousand foot. And that’s a bad example. Let’s say let’s say 25,000 per 1000 foot of lateral length. Well, if you go over 15,000 feet, your costs may not rise literally. They may slope off a little bit while you are continuing to rise. And at these prices, you can afford to be you can, you know, a $22 million AFV, which is probably what it’s going to cost to go drill one of these wells. You can swallow that because you’re going to you’re still going to be able to make your money back in 6 to 8 months. You know, and especially if you’re, quote unquote, highly constructive on oil prices, then there’s really only a time to go up from here because you might be able to lock in these rigs at $75. You know, service company prices went right to 100. You might there could be some saving. So if that’s your thesis, it does make sense. I do think it’d be hilarious. You know, we talked on Friday, Stu, specifically about the rumor that Pioneer was going to buy Range Resources. They had to announce a press release and say it’s going to happen. I was on Twitter today and I fell out of my seat. I got to give a shout out. This is one of the first what’s the name of this? The name of this Twitter account at Insolvent shit CO I mean it just I’m guy who ever came up with brilliant but the title was just not checkers and if you don’t mind throwing up the meme for everybody on YouTube, it goes chess, not checkers. So you’ve got the Winnie the Pooh meme where half the time he’s sitting there just looking scummy and then the other half he’s in a suit, smiling for a section, grinding on a model to evaluate whether M&A adds shareholder value or not. Part to leak rumor to Bloomberg and make that. 1:30 p.m.. Deep dive. I’m telling you, it’s exactly what happened. It’s exactly what happened. They were like, oh, let’s just leak the press, see what happens. Oh, stock down 4%. Pull it.

Stuart Turley [00:07:20] Pull it, don’t do it.

Michael Tanner [00:07:22] Absolutely Funny. So, I mean, getting back to this, this article, Stew pioneers are going to be able to drill these long wells that will you know, even if they’re over AFV, they’ll be able to make money. But I do find it funny that, you know, now all of a sudden, we’ve got you know, I love how I have a hard time as an economist predicting commodity prices. I think that’s I think oil and gas companies should not be in the business of predicting oil prices. You should be the business producing oil and gas for cheap as possible so that whenever the price does go down to a bad level, you’re able to continue to at least keep the lights on. And when it goes up to an extremely high level, you’re able to keep those low operated assets, invest more drilling and really ramp up production because you really make most of your money on these oil wells in the first six month of production. So it really doesn’t matter what the strip prices for years out when you’re drilling these new wells because all you care about is that first six months. But here we’ve got Scott Sheffield. See, you’re one of the largest companies in oil and gas businesses that were predicting oil prices. So this should be fun.

Stuart Turley [00:08:23] Hey, he’s a good dude.

Michael Tanner [00:08:24] What do you got next?

Stuart Turley [00:08:25] Okay, let’s come around the corner here. High gas prices. Let me make sure I don’t lose it. High gas prices could be the new norm for Europe. Oh, boy. I didn’t see this headline coming just last summer in August. There’s some bullets. China’s demand for LNG is expected to rebound this year, intensifying competition. Despite relatively high storage, Europe is increasingly reliant on LNG spot markets. Last summer, August, gas prices in the European market top €340 per megawatt hour. Holy smokes. Now here’s part of the gotcha on this, Michael, and that is they are not going to be able to fill up their stuff because they didn’t have the store, you know, they didn’t have nuclear, they didn’t have Russia’s natural gas. Norway has picked up a lot of that slack at 30% of what’s going into Europe is coming out of Norway. Now, U.S. was able to pick up a bunch, buy LNG, but there’s also a notice saying that some of the LNG folks are having to lay people off and shut down because of this low gas price. So I don’t know that Europe is going to be in any way able to get those. We do not. This is a quote we do not expect filling storage to be as costly next summer as it was this past year. Aurora Energy Research Jacob Mandel and I disagree with him 200%, he said. That said, firms rely on spot supply to fill storage rather than hedge against future prices will risk paying similar costs last summer. So. Here’s the thing. Qatar signed with China 27 year LNG gas, what, two months ago? Long term contracts is where the EU did not. They pooped on the rug and they just totally missed it. Okay, I’m done there. You got anything on that one?

Michael Tanner [00:10:29] No, I again, I think Europe did did this to themselves by relying strictly on Russian gas and then, you know, with with with whatever happened with the Nord Stream, we can debate that. We’ve got some random guy on Substack telling us it was blown up by the Biden administration. We’ve got, you know, whatever. Being reliant on one country is not good. So I think they’re I think they’re seeing that good for Norway, by the way. I’m sure they’re going to see price, you know, are probably doing better economically than you would expect probably because of this will be interesting to see here in 6 to 8 months when some of this data rolls out. But what do you got next?

Stuart Turley [00:11:06] Okay. Coming around the corner, the man in charge of how the US spends 400 billion. What’s a few billion between friends, Michael To shift away from fossil fuels, the Department of Energy’s loan programs office was essentially dormant. Says I’m going to butcher his name, but I believe it’s Hagar’s Schar its head. But now it’s ready to bankroll clean energy projects. Okay, This one is going to be very interesting. The third paragraph down says The last year’s Vast Inflation Reduction Act grew the previously moribund Office Loan Authority to 140 billion, while adding new program worth 250 billion in loan guarantees to retool projects that help planet heating emissions. Let me just say this for a half sec. All right? The Porkulus bill is what I call the inflation reduction. It is not going to be able to provide any of these projects. We talked about that last night. It’s like or this morning or whatever time zone we’re in. You can’t do it. It’s not good. You don’t have the brain trust, you don’t have the equipment, you don’t have the tools, and you may have the money, but you ain’t going to get it installed. So what are your thoughts?

Michael Tanner [00:12:35] Michael Yeah, I’m absolutely with you. You know, we covered it yesterday. I think that’s the Christmas way to hear it. If you didn’t listen to our show yesterday, we covered how, you know, despite all of these renewable projects that are getting Bill and none of them are getting connected to the grid. So I think you’re have to fight with that. And and if this money isn’t going towards grid interconnection, then it’ll be all for naught. So that’s that’s really all. I mean, otherwise they’ll probably be going to I mean if, if you’re asking me to do my opinion, I mean they’re going to, we’re going to blow this money, kiss this money goodbye, we might as well send it to Ukraine is going to get spent better.

Stuart Turley [00:13:11] There’s two other key points in here. When John Kerry was out there and he said, in order to fix climate, we need money, money, money, money, money, money, money. What a knucklehead. And then so the other paragraph is, even if the U.S. entirely cleans up its electricity grid, it will need thousands of miles of new transmission lines and integrated large scale batteries to store and distribute the renewable energy. All right, I’m done with that one. It’s going to be a brain trust. All right. Last one. Coming around the corner here, former Treasury secretary admits doubt on soft economic landing looks for global institutions, for solutions. And Michael, for our podcast listeners go to energy Newsbeat dot com and look for the story of Thelma and Louise going off into the Grand Canyon in this car. This is a perfect example. Former Treasury Secretary under Bill Clinton, Larry Summers joined Bloomberg to answer questions on this. He said on here a soft economic landing is not going to happen and the negative data is becoming too obvious to deny. Inflation signals are not relenting in the Fed will continue rate hiking rates. This will lead to a recessionary crash. So we’re going to admit the issue now in order to avoid looking like complete fools later. In the meantime, we’re going to use the ongoing crisis to promote more globalism, which is our intention all along. The message to Larry I love this from the author. You can hit you can’t hit the brakes when your cars are already off a cliff.

Michael Tanner [00:15:01] I read that says all you need to know. Oh, I mean, yeah, it’ll be very interesting to see how how we play out. I think the market is already prepping for a 50 basis points increase. The futures market is predicting the fact that there’s a 36 I heard there’s a 36% chance likelihood that it’s going to be a 50 basis point increase instead of what they thought a week ago, which was 18%. So it’s going to be spicy. So, you know. Volcker Inflation, maybe. Volcker inflation.

Stuart Turley [00:15:30] All right. Boy, I’m I’m tired. Yeah.

Michael Tanner [00:15:32] Boy, I’ll. I’ll clean us up here. Oil, guys, Trade 75, 77. I mean, really, again, as we mentioned, with with this likelihood of interest rates continuing to rise, the weakness in the U.S. dollar that will show its effects on oil and gas prices, specifically oil prices, I don’t think as much Chinese demand. You know, you can’t have you can’t have that many Chinese demand stories considering when the overall economic output looks terrible. You know, again, as as the dollar and the strength of the economy goes, so will oil prices. I think looking and turning over to natural gas, we actually saw it up to about to 70 today, currently trading about $2.69. As we record this on the 27th here at about 645. Again, what you’re seeing is just a nice little cold front coming in. I know you know, Colorado this weekend and then that Midwest Rocky Mountain region had some of the best snow I’ve sat. I was sitting here in Dallas not able to experience what’s probably the best skiing and snowboarding that happened in ten years. I mean, everybody was out there enjoying the powder and I was stuck here clanging and banging. But we did it for you guys. We did it for you guys. So that is I was on spring. Well, I wasn’t skiing. I was. It’s me.

Stuart Turley [00:16:40] I’m like, Hey, dude, I’m the one holding the fort down here. We’re going, Oh, that.

Michael Tanner [00:16:45] Wasn’t skiing, unfortunately. Unfortunately, I wasn’t skiing, but I saw some incredible pictures. So again, part of that cold front coming in California even saw a little bit of cold weather is rising. Natural gas prices in the short term, again, we are still oversupplied. So what does this mean, long term structurally for natural gas? I don’t actually know. I’d be honest, remiss if I did say two things. One, Oxy came out today and announced earnings. Their revenue hit a record 8.3 billion, which was up from 3.3 billion a year ago. You know, earnings per share dropped in at a dollar 81. I mean, that’s a pretty good thing. They also announced a new 3 billion share buyback program and a 38% increase to its dividend to an $0.18 share. Warren Buffett will make a killing on this after now cashing in on all of his preferred shares. He’s just moved over to regular stockholder he is loving. It’ll be very interesting to see what happens going forward. They announced this is a quote from our CEO, Vicki Hollub. They were pleased to announce that they completed an already existing $3 billion share buyback program thanks to its, quote, operational success. They were trading down by a fraction of a penny. But again, I think everything on the operational side for Oxy looks really well. Our friends over at Range Resources who are definitely not shopping themselves to anybody specifically I did also announced their earnings today. First off, 1.9 billion of record free cash flow. They did 1.5 billion return to shareholders through 400 million in share repurchases, 39 million in dividends and 1.1 billion in debt reductions. I love how they say the 1.1 billion debt reduction factors into the 1.5 billion to shareholders. When the shareholders will see anything that’s leverage is deleveraging. So I our guy, the weak side, whoever we get the worst new candidate right here who’s this? Sorry I got all I got a lot of stuff in this press release. They don’t they don’t They don’t give me the name of the guy. Oh, he’s right. Here we go. Investor contacts, late Sandow. That’s okay. No lay lay. You know.

Stuart Turley [00:18:46] I know.

Michael Tanner [00:18:46] Laith Well, I. I heard that. Hey, the we love that that that’s a great second bullet point usually 01. 5 billion to shareholders. No, no, no, no, no. We just we’re.

Stuart Turley [00:18:56] Going to give Laith a shout out.

Michael Tanner [00:18:59] All in capital spending 492 million or I love how natural gas producers $0.64 per MCF bruisers of 18.1 TCF with an after tax discounted future net cash flow of 24.5 billion development cost by $0.41 per AMC up. They increased their hedge positions to approximately 55 and 35% of its natural gas at $3.55 and $3.75 per MMBtu. BTU just pretty interesting considering, you know, if if prices do pop, you’re on the other end of it. So, you know, I always you know, hedging is your friend when you’re on the right side of it and you’re able to keep rolling. Good hedging forward. But when you’re behind on hedging and you’re trying to play catch up and you know, you’re always chasing the price versus having the price chase you, that’s when things get into a bad zone. Sort of be interesting to see, but good for range resources and good for. Laith. Got to love me a good a good little squeeze slip in there. Do you got anything else?

Stuart Turley [00:19:59] No. But remember this morning when or last night when we were talking about nuclear and sanctions?

Michael Tanner [00:20:07] Just keep it up.

Stuart Turley [00:20:08] It’s going to get worse.

Michael Tanner [00:20:11] I’m. Sure it will. I mean, on that level.

Stuart Turley [00:20:13] These guys are going to do it.

Michael Tanner [00:20:14] Geez, I don’t know how I survive every day. Still having to listen to you. It’s an onslaught. It’s an onslaught. So we appreciate you keeping us informed with that guys out here. Get back to work. Start your day for Stuart Turley, I’m Michael Tanner. We’ll see you tomorrow, maybe.