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Tariq Siddiqui's picture
COO Upstream EP Advisors LLC

Oil & Energy | Business Development | Capital Projects | Offshore Wind -  Proven leader in offshore development and operations, with 25+ years’ expertise in managing business through cycles...

  • Member since 2021
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  • Jul 14, 2021
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Financial discipline and investor returns are the watchwords, and the days of headlong debt-fueled growth in tight oil production are supposedly confined to history.

KEY INSIGHTS

  1. A process of steady consolidation is rolling up control of the key assets into a smaller number of hands, as a group of larger and financially stronger E&P companies buy out the smaller players.
  2. It is also further evidence that there are likely to be a few key players in the industry’s consolidation, including Chevron, ConocoPhillips, EOG, Marathon Oil and Devon Energy as well as Pioneer.
  3. The trend of organic growth of production is giving way to inorganic growth through M&A (scale & consolidation)
  4. Scale is important, because of the benefits of having an extended contiguous acreage. It also makes it easier to handle demands from investors, governments and customers for improved ESG performance.
  5. Methane leakage and flaring in the Permian has been rising in prominence as an issue for operators, and several of the larger E&Ps (ExxonMobil, Pioneer ) have backed regulations on flaring and leakage for some time. 
  6. The American Petroleum Institute, the industry group, in January came out in favour of direct regulation of methane emissions from new and existing sources, and said it would work with the Biden administration to develop “durable regulation that follows the law”. 

 

BOTTOMLINE

It has long been argued that the burden of complying with leakage and flaring regulations will hit small producers the hardest because there are significant FIXED COSTS involved. The rising pressure for action, from investors as well as from the administration, is another reason to think that for Permian operators, bigger will indeed be better. 

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Matt Chester's picture
Matt Chester on Jul 14, 2021

It has long been argued that the burden of complying with leakage and flaring regulations will hit small producers the hardest because there are significant FIXED COSTS involved. The rising pressure for action, from investors as well as from the administration, is another reason to think that for Permian operators, bigger will indeed be better. 

This is an interesting point-- and of course in the bigger picture it's the smaller producers that will have more issues diversifying as the energy transition marches forwards. 

Do you think there will be any action taken to help those workers/communities supported by these producers who will get hardest hit as there often is discussion of providing aid to coal communities amid coal's decline? Or will those small producers and their activities be taken up by the larger producers and end up in the same place? 

Tariq Siddiqui's picture
Tariq Siddiqui on Jul 14, 2021

The consolidation will be the name of the game and smaller companies, that depend on investors to for their development and growth will eventually be taken over by larger companies, that have balance sheet financing and credible ESG plans.

The ongoing decline in coal jobs and its impact on communities — from West Virginia to Wyoming — highlights the need for proactive policies. It also provides relevant examples of what could happen to other fossil fuel workers and communities if serious action to ensure a fair transition is not taken.  These regions provide relevant examples of what could happen to other fossil fuel-reliant communities without action. There will be a ripple effect beyond workers to entire communities, including families, teachers, local business owners, health care facilities and more.

GOVERNMENT SUPPORT POLICIES AND PROGRAMS NEEDED

The effects of this transition span beyond oil & gas. Workers and communities reliant on fossil fuels and dependent industries — including chemicals manufacturing and rail shipping — need supportive policies and programs as economic opportunities shift.

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