• Rationalization of supply will reduce growth expectations
from Tier 2 and 3 basins, impacting interests in E&P companies and midstream assets without MVC’s.
• Producer guidance in the Northeast suggests production
will grow by 14. 5 Bcf/d by 2019. East Daley expects fundamentals will slash Northeast growth to 11 Bcf/d as natural
gas prices adjust to accommodate surging production growth
in the Permian.
• Over $2.5 billion in contractual capacity commitments by
producers to long-haul pipelines creates a significant incen-
tive to produce for cash flow generation to cover those
• To meet these financial commitments, producers will only
need to increase rig count by 8 in the Southwest Marcellus/
Utica and by 10 in the Northeast Marcellus.
• Heavy reliance on LNG and LPG exports from substantial
single sources of demand creates variable risk for supply
should a project get canceled or have operational
Key findings from Part One (released May 2017) include:
• Expansions out of northeast Pennsylvania (NE PA) will result
in $1.9 billion in EBITDA split almost evenly between mid-
stream gathering and long-haul transportation.
• Higher-risk long-haul transport projects account for $182
million in transportation EBITDA but $254 million in mid-
stream gathering EBITDA.
• Productive capacity for producers in NE PA is limited to 14. 2
Bcf/d, 5. 2 Bcf/d higher than current production levels.
• Cabot, Chief, Seneca and Shell will all see over 100% in-
creases in production growth.
• Williams Partners (WPZ) will realize an upside of $658 million
from NE PA, driven by production linked through their gath-
ering systems to new long-haul expansions.
• ETP’s NE PA gathering system will almost double from 16%
to 28% of midstream segment EBITDA.
MAJORS START SHAPING STRATEGIES TO CAPTURE
A PIECE OF THE RENEWABLES ACTION
Renewable energy sources are set to radically reshape global
energy markets. For the Majors, this poses a threat to legacy
oil and gas operations, but is also an opportunity to diversify
and future-proof portfolios. A new report by Wood Mackenzie
takes a closer look at the value proposition in wind and solar
and the pace of the shift towards renewables out to 2035.
“The growth opportunity in renewables cannot be ignored,”
said Tom Ellacott, senior vice president, research, corporate
analysis. “We forecast average annual growth rates of 6% for
wind and 11% for solar over the next 20 years.
“Renewables will satisfy only 1% of the world’s energy needs
in 2017, but will have captured a much bigger slice of the global
energy market by the middle of the next decade, as oil and
gas demand growth.”
Ellacott adds the value proposition is competitive versus
some upstream investments. Returns rank favorably with many
of the Majors’ pre-sanction long-life developments, the most
comparable upstream asset class. The long-life nature of wind
and solar projects and stable cash flow visibility could also
provide much-needed support for dividends.
The European Majors are leading the way in shaping strategies to establish a presence in this fast-growing market. Offshore wind may be the most attractive route to organic growth
in the near term. It offers scale and scalability on a par with
upstream mega-projects. Solar is more fragmented and competitive, but Total has used M&A to establish early mover
Wood Mackenzie expects capital to increasingly be diverted
from upstream to build positions in wind and solar. Renewables
could account for over one fifth of total capital allocation for
the most active players post-2030. But wind and solar on their
own are not going to transform growth prospects for the peer
group as a whole.
“The scale of the opportunity is simply not there on our
forecasts for solar and wind, at least not in the next 20 years,”
said Ellacott. “We estimate spend of US$350 billion on wind
and solar out to 2035 is needed for the Majors to replicate the
12% market share they hold in oil and gas. But even this ‘bull’
scenario would lift renewables to just 6.5% of the Majors’ pro-
duction in 20 years’ time.”
Wind and solar are increasingly important strategic growth
themes that the Majors cannot afford to ignore as they plan
for 2035 and beyond. Companies are only just starting to sow
the seeds for the radical changes that lie ahead. The Majors
can bring their expertise in the energy value chain to build
optionality and portfolio balance which will help hedge against
any future erosion of the upstream value proposition and the
anticipated progressive hardening of investor sentiment towards
EP ENERGY, TESORO FORM UINTA BASIN DRILLING JV
EP Energy Corp. and Tesoro Corp. formed a drilling joint venture, through respective subsidiaries, to fund oil and natural
gas development in EP Energy’s Altamont program located in
the Uinta Basin of Utah. EP Energy and Tesoro signed a multi-year crude oil supply agreement for yellow and black waxy
crude oil to supply Tesoro’s Salt Lake City Refinery. The 60 well
program will see Tesoro provide a capital carry in exchange for
50% of EP Energy’s working interest in JV wells. Tesoro to purchase all oil production from the JV wells. EPE’s net share of
capital is expected to be $64 million and EPE will retain operational control of the JV assets. Under the supply agreement,
Tesoro will purchase all of the oil produced through the drilling
JV, along with additional waxy crude oil produced by EP Energy
in the Uinta Basin. This oil will provide assured supply of local
crude oil for Tesoro’s Salt Lake City Refinery. EP Energy’s average
working interest in the joint venture wells is currently approximately 80%.