oil price recovery: what does that mean for steel? content below the line no content below the line...

No content below the line No content below the line

Oil Price Recovery: What does that mean for steel? Nicole J. Leonard, Senior Consultant Commodities Consulting, Bentek Energy


Why I’m bearish short-term oil prices, bullish long-term prices

2


Crude and liquids drive drilling and production activity, not much gas-by-rail activity

$- $2.00 $4.00 $6.00 $8.00

$10.00 $12.00 $14.00 $16.00 $18.00 $20.00

$/M

MB

tu E

quiv

alen

t

Historical Commodity Price Spreads

Brent WTI Mont Belvieu HH CAPP

3 Source: S&P Global Platts Analytics


Bentek maintains bearish stance through 2017, remains bullish compared to the market

4

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$/bb

l

Bentek’s Brent Price Forecast

History Feb-15 Current

Source: S&P Global Platts Analytics, Bentek

Volatility driven by

supply uncertainty


OPEC cuts seem to be on target, risks and duration create uncertainty and volatility

5

(0.60)

(0.50)

(0.40)

(0.30)

(0.20)

(0.10)

0.00

0.10

0.20

MM

b/d

Change in OPEC Production by Country (Oct – Jan)

Change in Production Proposed Cut

Proposed cut: 1.2 MMb/d Platts estimate: 0.9 MMb/d

Source: S&P Global Platts Estimates


Non-OPEC countries still planning supply growth

6

Moho, Congo 140 Mb/d in

2017

Edvard Greig, Norway

100 Mb/d in 2017

Cidade de Itaguai FPSO, Brazil

150 Mb/d in 2017

Filanvovsky and Pyakyakhinskoye 110 Mb/d in 2017

GLOBAL SUPPLY PROJECTS RAMPING UP IN 2017

Canadian Oil Sands ~300 Mb/d in 2017

*

*

* * *

* * *

* * *

* Non-OPEC countries participating in production cut. Source: S&P Global Platts Analytics Bentek


“But don’t worry, America still has more oil than we can use in 500 years.”

7

$25

$45

$65

$85

$105

$125

$/bb

l

Historical Brent Prices and Forward Curve

Hisory Forward Curve (Mar 3)



Bakken 40/+9 (30%)

Anadarko 113/+41 (57%)

Niobrara 26/+8 (44%)

Eagle Ford 74/+28 (61%)

Permian 318/+166 (112%)

Active rig count: Mar 3, 2017 / Change in rig count from Mar 4, 2016

Rigs return to oil plays on higher prices, rigs also return to gas plays on bullish market

TOTAL US 874/+353

(68%)

US Rig Count (Oct ’14)

2,143 -60% from

peak

Source: S&P Global Platts Analytics RigData 8


Do breakevens even matter?

9

Henry Hub (Jan 19):

$3.26/MMbtu

Source: S&P Global Platts Analytics Bentek 9


Prices remain above breakeven floor, yet production does not recover

10

$0

$1

$2

$3

$4

$5

$6

$7

50

55

60

65

70

75

Pric

e ($

/Mm

btu)

Prod

uctio

n (B

cf/d

)

US Natural Gas Production v Prices

ProductionHenry Hub Natural Gas PriceAvg Gas Breakeven Price

$0

$20

$40

$60

$80

$100

$120

5

6

6

7

7

8

8

9

9

10

10

Pric

e ($

/Mm

btu)

Prod

uctio

n (M

Mb/

d)

US Crude Oil Production v Prices

ProductionWTI Crude Oil PriceAvg Oil Breakeven Price

Source: S&P Global Platts Analytics


What happened to efficiencies or has debt finally crippled US producers?

11

-$40

-$20

$0

$20

$40

$60

$80

$bn

Debt/Stock Issued v Repaid

Issuance of Common Stock Repurchase of Common Stock

Total Debt Repaid Total Debt Issued

Balance

Source: S&P Global Platts Analytics Bentek, S&P Capital IQ

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

$bn

US/Canada E&P Net Debt/EBITDA


Public producers selling, not acquiring, selling mostly private money and independents

12

-$15-$10

-$5$0$5

$10$15$20

bn$

US/Canada Acquisitions v Divestitures

Divestitures Sale of Property Cash Acquisitions

0.00.51.01.52.02.53.03.54.04.5

bn$

Publically Announced Private M&A by Value

Source: S&P Global Platts Analytics Bentek, S&P Capital IQ


Private money more suited toward quick “flip” of assets rather than long-term investments

13

$-

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Cum

. Inc

ome

($bn

)

Prod

uctio

n (M

b/d)

Oil Production from $300MM Investment

Shale (2-year, 5-rig program) Offshore Platform Cum. Income (Shale) Cum. Income (Offshore)

Source: S&P Global Platts Analytics Bentek


Who’s investing in the long-term, low-decline assets?

14

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$/bb

l

Bentek’s Brent Price Forecast

History Feb-15 Current


Prices incent production growth to meet demand growth


IOC capex needed to drive global supply growth, but they have to make money first

15

0

5

10

15

20

25

30

35

40

45

BP Exxon Mobil

USD

bn

Quarterly Capital Expenditures

2012 2013 2014 2015 2016

Source: S&P Global Platts Analytics, Bentek, CapIQ

0

20

40

60

80

100

120

140

BP Exxon Mobil

USD

bn

Net Undeveloped Acreage

2012 2013 2014 2015 2016


Exports drive natural gas demand growth of over 15 Bcf/d in just five years

16 Source: S&P Global Platts Analytics, Bentek

-5.0

0.0

5.0

10.0

15.0

20.0

Bcf

/d

US Natural Gas Demand Growth from 2016

Mexico ExportsLNG ExportIndustrialRes/CommPower Burn


Higher gas prices on higher exports could drive drilling activity in dry gas plays

17

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$/M

Mbt

u

Henry Hub Price Forecast v NYMEX Forward Curve

Bentek NYMEX Forward Curve



What does this mean for steel?

18


Three-year rig forecast suggests a return to 80% of previous rig count in high case

19

0200400600800

1,0001,2001,4001,600

# of

act

ive

rigs

RigData’s Historical and Forecast Rig Count

Actual Low Case Base Case High Case



0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Anadarko Delaware DJ Basin Eagle Ford Marcellus Midland

Late

ral L

engt

h (fe

et)

Producer-Reported Average Lateral Lengths by Play

2013 2014 2015 2016

Lateral lengths increase 20% YOY, differs on geology of play, expected to increase

20 Source: S&P Global Platts Analytics, Bentek


All drilling is getting deeper, resulting in 45% increase in steel demand per well since 2010

21

0

5,000

10,000

15,000

20,000

25,000

Wel

l Dep

th

Historical Oil/Gas Well Depths by Producing Area

Northeast Wet Gas Permian Delaware Denver-Julesburg Permian MidlandEagle Ford Bakken Average US


Drilling activity not expected to reach shale-revolution levels, incremental 22,000 wells/year expected

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

# of

wel

ls d

rille

d

Historical and Forecasted Wells Drilled in North America

Drilled Forecast

Source: S&P Global Platts Analytics, Bentek, RigData 22


Steel demand in West Texas expected to grow to 2014 levels, prime steel demand area for E&P

23

0.00.51.01.52.02.53.03.54.0

Mill

ion

Tons

Historical and Forecasted Steel Tube and Casing Demand in the Permian

Delaware NM Midland Delaware TX Permian Other

Assumptions: 2016 average well depth/lateral length held constant


Line pipe demand could grow, pipeline projects at risk on less production

Source: Bentek

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2016 2017 2018 TBD

% o

f mile

s at

risk

Mile

s of

Lin

e Pi

pe

Miles of New Pipeline and Risk to Completion

Miles of Line Pipe % of miles at risk


Energy demand consolidating in the US Gulf Coast, fewer long-haul pipelines needed

25

690 Mb/d of new pipeline capacity announced in the Permian this year

Eagle Ford rig count doubles since

October

Crude exports to grow to +1.0 MMb/d

by 2023

USGC accounts for 54% of total US crude demand

Refined products exports growing 15% every year

Natural gas liquids export and petchem

demand growth


Key Takeaways

26

- Short-term oil market could be oversupplied once OPEC resumes production and if US private equity buoys US production.

- Long-term oil supply is being overlooked due to market optimism around US shale production, but investment is needed now for long-term supply growth to meet demand.

- Increasing natural gas demand in the US for exports as LNG and to Mexico could spur dry gas drilling and the need for new pipelines over the next ten years.

- Oil and gas wells are getting deeper and utilizing more steel than historically, though the number of wells drilled are unlikely to reach pre-price collapse levels.

- Less line pipe needed as US energy market centralizes in the US Gulf Coast, but a resurgence in drilling elsewhere would require more pipe.


Questions?

Nicole Leonard, Project Manager, Oil & Gas Consulting

[email protected] Direct: (720) 264-6680

mailto:[email protected]

oil price recovery: what does that mean for steel? content below the line no content below the line...

Documents