Special Focus on Independent Oil & Gas
U.S. is obviously still facing many challenges as well. On the other hand, the economic environment in both Latin America and Canada appears to be quite robust given the weak conditions in much of the world. Regarding North American natural gas prices, this is clearly presenting a challenge for all who aren’t well hedged and is likely to continue to do so for quite some time. While reducing drilling for gas and shutting in gas production as well as, in due time, exporting LNG could improve the situation, the increasing production of associated gas and the increase in global gas production are both likely to dampen the impact of reduced North American production and LNG exports.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ James Ward, Founder and Chairman,Whale Rock Professional Services Group
2012 is anticipated to be a year of activity in the O&G sector after depressed capital markets in 2011. It is our belief that the capital markets will continue to recover after a strong January ‘12 and that this should facilitate the raising of money for increased activity by Independents. We expect that the oil price will continue to rise driven by the Syrian and Iranian crisis and demand fuelled largely by China and Japan’s post Fukushima move away from nuclear power. We see the issues and challenges faced as including:
Ability to access capital markets – 2011 saw depressed capital markets and the Independents are likely to require funding in 2012 to deliver their plans and drive shareholder value. It will be interesting to see how many of the delayed IPOs succeed in raising finance in 2012.
Oil price volatility and uncertainty impact commercial viability of exploration and appraisal programmes and the capital markets are likely to discount risk until price consensus emerges.
Opening up of new exploration areas – “new” areas include the Falklands, Azerbaijan and Eastern Mediterranean. Whilst there are political issues between Israel & Lebanon and UK & Argentina there are opportunities for Independents
Renewal of fields and equipment in re-emerging producing areas – Libya and Iraq in particular are geographical areas where Independents can access and partner with majors and NOCs. We expect Libya to be of particular focus towards the end of 2012.
Threat to Independents resulting from the expansion of non-producing NOCs looking, with home Government support to secure long terms access to oil and gas.
Regulatory conditions post BP’s Macondo - all companies and governments are now “awake” to the corporate shareholder damage that environmental accidents can inflict
Skills shortage -The industry has a general skills shortage and coupled with often “hostile” locations of operations this skills shortage needs to be addressed to secure long term resource of a sufficient calibre.
Independents with strong management and having refocused operating costs after a poor capital markets year in 2011 should be placed to access finance through enhanced confidence in 2012 to fund existing operations and to exploit the new and re-emerging exploration areas so long as they can attract appropriate personnel and maintain appropriate HSE controls. You can reach James directly at:
james.ward@whalerock.co.uk
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Bruce Edgelow, Vice President, Energy, ATB
ATB Corporate Financial Services’ Energy Group is a market leading lender in the Canadian junior and intermediate oil and gas space. Given the overall volatility in this industry, a majority of our oil and gas clients will have to address certain key challenges in 2012. With most oil or liquids weighted clients performing well as a result of buoyant crude prices, the most challenging issues will be experienced by natural gas producers.
Lower gas prices have two primary negative impacts on producers: lower cash flow and a decline in value of booked reserves. Lower cash flow means there are fewer funds available to replace reserves, while a lower valuation of
existing reserves translates to less available borrowing base eligible lines of credit. Year-end gas weighted reserve evaluations will be dually impact by the year over year significant reduction in forecasted commodity prices. Not only will the NPV of the reserves be less, but certain reserve profiles will be deemed uneconomic at the current prices and removed from the total proved asset profile. The combined impact of lower cash flow and a reduction in available bank debt may result in the most challenged producers having outstanding debt that exceeds their current credit facility limit when their annual review is completed this spring/summer.
Drillers and Dealers :::
::: February 2012 Edition
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