A New Bottleneck Emerges For U.S. Oil And Gas

By Alex Kimani - Feb 08, 2023

• Despite the mostly impressive top- and bottom-line growth, capital discipline and returning cash to shareholders have been consistent themes for oilfield services giants.
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• Wood Mac has reported that in 2022, the average cost of drilling and completing a well in the U.S. Lower 48 states rocketed 34%.
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• Oilfield services capacity in key markets, including North America, is a key determinant of the pace of growth in oil and gas production.

When the energy crisis hit a nadir two years ago, highly indebted E&P companies quickly changed their operational playbook, adopting stricter cost discipline, cutting back on expensive drilling programs and vowing to return more cash to shareholders in the form of dividends and buybacks. 

But E&Ps are not the only ones pursuing this new strategy. Oilfield services (OFS) companies have also adopted greater cost discipline, prioritizing cash generation and distributions to shareholders. For instance, in their latest earnings season, OFS giants Schlumberger (NYSE:SLB), Baker Hughes (NASDAQ:BKR) and Halliburton (NYSE:HAL) announced significant dividend hikes and heightened share buybacks.

SLB reported full-year revenue of $28.1 billion, good for a 23% Y/Y increase while net income of $3.4 billion grew a robust 83%Y/Y. SLB raised its quarterly dividend by 43% and resumed share buybacks. The company says that it expects to distribute more than 50% of free cash flow to shareholders in dividends and buybacks in the current year. SLB has also been strengthening its balance sheet, managing to pay down $1.7B in debt during the year to bring it down to $9.3B.

BKR reported Q4 2022 revenue of $5.9 billion, up 10% sequentially and up 8% Y/Y. Non-GAAP net income clocked in at $692 million, up 38% sequentially and up 21% Y/Y while net income fell 38% Y/Y to $182 million. Despite the lower profit, BKR announced its first dividend hike for the first time since 2017.

Meanwhile, HAL reported full year revenue of $20.3 billion, up 33% Y/Y while full year operating income of $2.7 billion increased 50% Y/Y. The company announced a 33% divided hike and resumed its share buyback program.

Despite the mostly impressive top- and bottom-line growth, capital discipline and returning cash to shareholders have been consistent themes in these companies’ latest earnings calls while capex growth remains muted. But global research and consultancy group Wood Mackenzie says that this is not necessarily a good thing from an E&P perspective.

Limiting Growth

Indeed, Wood Mac says that services capacity in key markets, including North America, is a key determinant of the pace of growth in oil and gas production, noting that running equipment harder is likely to result in more frequent breakdowns and disruptions. The analysts have warned that execution risk has the potential to be an even more serious problem than cost inflation, one of the biggest concerns for these companies in recent years. The experts say that capacity utilization rates for frac spreads--the pressure pumps used for hydraulic fracturing--and super-spec high-quality rigs are already running high.

Wood Mac has reported that in 2022, the average cost of drilling and completing a well in the U.S. Lower 48 states rocketed 34% as prices for diesel, proppant, and steel pipe hit record highs. However, the analysts expect cost inflation to be moderate this year, with costs expected to only rise 10%.

OFS companies might also be negatively impacted by new exploration and drilling practices being adopted by oil and gas producers. According to Wood Mackenzie’s ‘Oil and gas exploration 2022 edition, exploration well numbers in 2022 were less than half the numbers during pre-pandemic years; luckily the total volume of 20 billion barrels of oil equivalent was comparable to the average in the 2013 – 2019 period, creating at least $S33 billion of value. In other words, E&P companies are unwilling to go back to their drill, baby, drill days and are instead focusing their energies on low-cost, lower-carbon but high-yield assets.

“2022 was a standout year for exploration,” says Julie Wilson, Director of global exploration research at Wood Mackenzie.  

While volumes were good, Wilson says, they aren’t “stellar”. 

Still, she says, “explorers were able to drive very high value through strategic selection and focusing on the best and largest prospects”. 

The end result is that we’re seeing new discoveries with higher-quality hydrocarbons in portfolios. And it’s also better for the climate because these more strategic discoveries allow companies to “reduce carbon by displacing less advantaged oil and gas supplies while also meeting the world’s energy needs,” according to Wilson. 

Wood Mac says that the highest value came from several new deepwater discoveries in Guyana and Brazil; world-class discoveries in a new deepwater play in Namibia; and resource additions in Algeria. 

The average discovery last year was over 150 million boe, more than double the average of the previous decade. National oil companies (NOCs) and oil majors accounted for nearly 75% of new discoveries, with Exxon Mobil (NYSE: XOM), TotalEnergies (NYS: ETTE), Petrobras (NYSE: PBR) and QatarEnergy leading the way in net-new discovered resource. 

Another interesting development: Liquids accounted for 60% of new discoveries, marking just the third time in two decades that liquids made up the majority of new discoveries.

By Alex Kimani for Oilprice.com

Why Biden's State Of The Union Remarks About Oil And Gas Make Sense

By Leonard Hyman & William Tilles - Feb 09, 2023, 

• Biden’s State of the Union remarks actually made sense.
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• Decarbonizing the economy will take time, and Biden’s remarks about oil made sense.
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• Energy companies must carefully consider their long-term fossil fuel commitments as demand will become increasingly unstable in a not-so-distant future.

During the State of the Union address, President Biden wandered off script for a minute and ad-libbed, “We’re going to need oil for another decade.” This remark drew hoots from Republican lawmakers and doubting commentary from conservative influencers. But exactly what did he say that was wrong? Maybe more than a decade? Okay, he added that, after the hoots. But, as far as we can tell, he sent the right message.

There are five ways to decarbonize our economy, three of which would directly affect consumption of fossil fuels. (1) Environmental engineering literally sucks the carbon dioxide out of the air and either uses it in an industrial process or stores it somewhere. Not much commercially available yet and little idea of cost. (2) Carbon capture and sequestration (CCS) removes carbon dioxide as it is created during combustion and similarly either uses or stores the captured CO2. Putting a chemical plant (which is what a CCS facility is) onto a furnace adds considerable expense. But both these CO2 attenuation methods should make fossil fuel producers happy because they only address or remedy after-the-fact emissions, not the consumption of fossil fuels. (3) Producing green hydrogen with renewable resources would create a new, non-carbon emitting fuel to compete with existing fuels. Major industrial gas and fertilizer companies are already at work on this technology. (4) Using energy more efficiently. Conservation, for obvious reasons, is undoubtedly the cheapest emissions reduction technique. (5) Lastly, increasing electrification would replace direct use of fossil fuels with electricity produced without burning fossil fuels. An example here is a battery electric vehicle powered by renewable resources. Note that methods (3) to (5) compete directly with fossil fuels or will, if adopted at scale, reduce the use of fossil fuels. 

Now for a few facts, unadorned by speculation. Over 90% of steam coal used in this country is sold to electricity generators, who burn it in old power stations close to or beyond retirement age. As those stations age out and close down, US coal consumption will fall unless somebody comes up with an extraordinarily effective and cheap means of carbon capture and sequestration. Will US producers sell their coal abroad, instead? Maybe during exigencies created by the Ukraine war. But foreign utilities with ancient coal-fired stations often keep them going to keep local miners employed. Would they do so to keep American miners employed? We doubt it. Electrification will produce a sharp drop in coal sales.

Roughly 37% of natural gas consumption in the US is by electricity generators. The electric industry would like to gradually phase in decarbonization, which might mean a slow drop in natural gas sales to the industry. But electrification also involves efforts to eliminate natural gas markets for residential heating, cooking. and industrial processes. Hydrogen producers might attempt to compete for some of these same markets. And natural gas distributors will want to show green credentials by adding renewable gas to their energy mix. Admittedly, like coal, gas producers might eye foreign markets for replacement sales. But remember that other major industrial countries are also pursuing their own versions of electrification. Natural gas usage and sales might be under steady pressure for decades.

As for petroleum itself, about 60% of sales goes to transportation— the number one market for electrification. Virtually all major auto manufacturers have committed to electric vehicles with stated plans to produce no other vehicle types starting in the 2030s. Shortages of computer chips, that have hindered sales, will not last forever. As for the potential shortage of minerals, history tells us that adaptive manufacturers alter their processes to accommodate shortages. Mining companies find new deposits or suitable substitute minerals. We suspect that, in the end, the story of lithium will not be much different than the history of natural tree rubber, first becoming scarce and then synthesized from polymers.

To sum up. Was President Biden right about oil? We would argue that all energy consumption will grow around 1% per year, roughly, in line with current projections.  If electricity begins to power all new vehicles by around 2035, we expect oil consumption would decline from then on, maybe stabilizing by 2050 at a substantially lower level than today. As for natural gas, which represents a substantial portion of the US power generating fleet, we expect electric generators will try to maintain these relatively new facilities for as long as possible or at least until enough renewables enter the market so as to render them irrelevant. But, in our view, every US gas-powered electricity generator is at some risk of premature closure. There will be political pressure as the climate heats up and unpleasant transformations occur and economic pressure as renewable technology improves and gets cheaper. And between more efficient gas appliances and competition from renewable gas and electricity, we don’t see much strength in long term gas sales either. So natural gas hangs on at best domestically as a utility boiler fuel. Maybe sell more abroad? As we suggested regarding petroleum, we think natural gas usage will also decline. By 2050 usage will be way down from current levels. As for coal, we aren’t convinced there will be a meaningful industry here in a decade especially as the move towards “green” steel and cement removes their last two big industrial markets. 

So, back to the beginning. It seems President Biden was right. But in a decade from now (when battery electric vehicles are the only ones sold) the energy industry will have to face up to the unpleasant possibility of a long period of decline. And that brings up a related financial question. How can energy and utility companies invest in large assets and projects lasting forty or more years when the long term outlook is so uncertain and possibly negative? We’re inclined to think senior management's answer will be: let’s invest as little as possible until the long term outlook clarifies. 

By Leonard Hyman and William Tilles for Oilprice.com

Sanctions imposed by US and allies hamper relief and rescue work in earthquake-devastated Syria

Over 5,000 people have been reported dead so far and thousands more injured in Turkey and Syria in a 7.8 magnitude earthquake on Monday

February 07, 2023 by Peoples Dispatch

The Syrian Arab Red Crescent demanded Western countries to lift sanctions on Syria to help with rescue and relief work, February 7, 2023. (Photo: SANA)

The head of the Syrian Arab Red Crescent, Khaled Hboubati, demanded on Tuesday, February 7, that Western countries, specifically the US and its allies, lift their siege and sanctions on Syria so that rescue and relief work can proceed unimpeded, after the country was devastated by a powerful earthquake on Monday.

“We need heavy equipment, ambulances and fire fighting vehicles to continue to rescue and remove the rubble, and this entails lifting sanctions on Syria as soon as possible,” Hboubati said at a press conference on Tuesday, as reported by the Syrian Arab News Agency (SANA).

A powerful earthquake registering a magnitude of 7.8 struck Turkey and Syria on Monday. Over 5,000 people have been reported dead so far. In Syria alone the death toll was 1,602 on Monday. These numbers are only expected to rise as a large number of people are suspected to be still buried under the debris of houses that collapsed in the earthquake and its aftershocks.

Kahramanmaraş, a city in Turkey, was reported to be the epicenter of the earthquake, and the nearby city of Gaziantep—home to millions of Syrian refugees—was reportedly hit the hardest. Relief and rescue operations in Turkey have been affected by bad weather as several of the affected areas have received heavy rain and snowfall on Monday and Tuesday.

Syria’s northern provinces such as Idlib, Latakia, Hama, and Aleppo have also been badly affected by the earthquake. Some of the affected areas in Idlib and Aleppo are under rebel control and densely populated by refugees from other parts of the country.

Though several countries including the US and its allies have extended their support to Turkey in its relief and rescue work, they have refused to extend similar assistance to Syria. The US State Department made it clear on Monday that it was only willing to support some work carried out in Syria by NGOs, but that it would have no dealings with the Bashar al-Assad government. “It would be quite ironic—if not even counterproductive—for us to reach out to a government that has brutalized its people over the course of a dozen years now,” State Department spokesperson Ned Price said, as quoted by Al Jazeera.

On Monday, the Syrian government had issued an appeal to the international community asking for help. Syrian Foreign Minister Faisal Mekdad is quoted in Al-Mayadeen as having said that his government was willing “to provide all the required facilities to international organizations so they can give Syrians humanitarian aid.”

Sanctions hamper relief and rescue work

Claiming that “Current US sanctions severely restrict aid assistance to millions of Syrians,” the American Arab anti-Discrimination Committee (ADC) asked the US government on Monday to lift its sanctions. While it said that the NGOs working on the ground were doing a commendable job, it also said that the “lifting of the sanctions will open the doors for additional and supplemental aid that will provide immediate relief to those in need.”

The US Congress had adopted the so-called Caesar Act in 2020, according to which any group or company doing business with the Syrian government faces sanctions. The act extends the scope of the previously existing sanctions on Syria, imposed by the US and its European allies since the beginning of the war in the country in 2011.

The impact of sanctions on Syria’s health and other social sectors and its overall economic recovery have been criticized by the UN on several occasions in the past. The UN has also demanded that all unilateral punitive measures against Syria be lifted.

Meanwhile, countries such as China, Iran, Russia, Cuba, Algeria, and the UAE, among others, have expressed their willingness to provide necessary support to Syria, and have sent relief materials already.

Al-Mayadeen has however reported that the delivery of international aid, as well as the speed of relief and rescue work in Syria, continue to be impeded as the Damascus international airport is not fully operational at the moment. The airport was hit by an Israeli missile on January 2 and repair work is not yet complete.

Cuba, Venezuela and China are rushing aid to earthquake-hit Syria. US can’t even fully withdraw sanctions

The US Treasury has issued a 180-day waiver on certain sanctions imposed on Syria to allow for earthquake relief. However, the US and its allies have yet to offer meaningful assistance to Syria even as Venezuela, China, Palestine, and others have dispatched aid and specialists

February 10, 2023 by Peoples Dispatch

Syrian Red Crescent members conducting a rescue operation. (Photo:@SYRedCrescent/Twitter)

On Thursday, February 9, the United States Treasury Department announced a temporary waiver of certain sanctions imposed on Syria to facilitate relief and recovery efforts in the earthquake-hit country. The move follows growing international outrage and public appeals, including by the Syrian government and countries such as Venezuela and China, to remove the brutal and illegal sanctions that the US has imposed on Damascus.
At least 21,719 people have died—as of February 10—after a 7.8 magnitude earthquake on February 6 devastated large parts of southern and central Turkey as well as northern and western Syria. Over 79,000 people have been injured and over 3.7 million have been displaced since then, with rescue operations still underway in search of survivors in the midst of aftershocks. 

The US Treasury’s Office of Foreign Assets Control (OFAC) issued a “blanket” Syria General License (GL) 23, “which authorizes for 180 days all transactions related to earthquake relief that would be otherwise prohibited by the Syrian Sanctions Regulations (SySR).”

Addressing a joint press conference at the United Nations headquarters on February 7, Syria’s Permanent Representative to the UN Bassam al-Sabbagh explained how sanctions were impeding humanitarian relief and access: “Lots of cargo planes refuse to land at Syrian airports because of the American and European sanctions. So, even those countries who want to send humanitarian assistance, they cannot use the airplane cargo because of the sanctions.”

The head of the Syrian Red Crescent, Khaled Hboubati, stated during a press conference on Tuesday that “There is no fuel even to send [aid and rescue] convoys, and this is because of the blockade and sanctions.” 

Meanwhile, in its statement on February 9, the US government reiterated that its sanctions do not target “legitimate humanitarian assistance”—a claim proven false in other countries that have also been targeted by US sanctions. The risk of obstruction of humanitarian aid is also heightened due to possible overcompliance, and particularly in the case of Syria due to the “unfettered emergency powers” and “extraterritorial reach” granted under the US’s Caesar Act. 

The US claims that GSL 23 “expands upon” the “broad humanitarian authorizations already in effect under the SySR for NGOs, international organizations (IOs) and the US government.” 

However, over the past week, people on social media platforms have reported that US-based fundraising company GoFundMe was suspending accounts that were attempting to raise money for Syria.

Countries dispatch aid to Syria and Turkey

While the US and its allies rushed to mobilize and dispatch rescue teams and supplies to Turkey, they have dragged their feet to provide even the bare minimum aid for Syria by refusing to meaningfully lift sanctions to allow aid to reach the country. Despite this, there are countries around the world that have been providing critical on-ground assistance to both Syria and Turkey. 

On Thursday, 25 specialists part of the Simon Bolivar Humanitarian Task Force arrived from Venezuela to Damascus accompanied by 12 tonnes of medicine, drinking water, and food. A day prior, the government of Venezuelan President Nicolas Maduro had dispatched 52 specialists to Turkey and Syria to assist with relief efforts. 

A team of Cuban doctors from the Henry Reeve International Brigade has also arrived in Turkey. On Wednesday, Syria’s ambassador to Cuba Ghassan Obeid confirmed that 27 doctors from Cuba will also arrive in Syria soon to assist affected populations and local authorities. 

China announced that it will be providing the first tranche of $5.9 million in emergency aid to Turkey. Beijing also dispatched an 82-member rescue team that arrived in Turkey’s Adana airport on Tuesday, bringing with them 20 tonnes of medical aid and rescue supplies. 

On Thursday, China’s ambassador to Syria Shi Hongwei told CGTN that the first Chinese rescue team had arrived in Damascus, accompanied by an initial batch of medical supplies. A spokesperson from the Chinese Foreign Ministry had announced on Wednesday that China will offer USD 4.4 million in emergency aid to Syria. 

A team of 73 rescuers, including members of the Palestinian Red Crescent and the Palestinian Civil Defense, headed by the Palestinian International Cooperation Agency (PICA), left for Jordan from the Occupied West Bank on Thursday, from where they will be divided into two teams—one headed to southern Turkey and another headed to northwest Syria. 

Russia had dispatched four aircrafts on Monday with over 100 emergency response specialists, including medics to assist in search and rescue operations in Turkey and Syria. Algeria also sent over 100 tonnes of medical supplies, food, and tents, as well as a Civil Protection team that arrived in Aleppo earlier this week. India has also dispatched aid supplies to Syria, along with dispatching rescue teams to Turkey. 

Countries including Iraq, Jordan, UAE, Pakistan, and Tunisia have also provided emergency assistance and supplies, even as various other countries have expressed messages of solidarity. 

The UN has stressed that sanctions should not prevent the delivery of assistance to the Syrian people. According to the International Organization of Migration (IOM), 14 humanitarian aid trucks had crossed into northwestern Syria on Friday, bound for rebel-held Idlib. 

From Iran, the sixth plane carrying humanitarian aid, including infant formula and food, was reported to have landed in Syria early on Friday. The Iranian army and the Iranian Revolutionary Guards Corps (IRGC) have also dispatched equipment for a 50-bed mobile hospital along with 70 relief and medical staff to Turkey. 

The first Iranian plane had landed in Damascus on Tuesday, carrying 45 tonnes of food and medical supplies. Iran has also sent planes carrying aid to Latakia and Aleppo—where IRGC commander Brigadier General Esmail Qaani arrived late on February 8 to supervise aid delivery. 

Meanwhile, Israel has already threatened a military attack, with an unnamed military official citing “information” that “indicated” that Iran might “take advantage” of the situation and send weapons along with humanitarian aid to Syria. 

Israel has continued to carry out illegal and unilateral acts of aggression against Syria, including airstrikes that have killed numerous civilians and caused damage to critical infrastructure. According to Al Mayadeen, the airport in Damascus, which has been repeatedly targeted in such attacks, is reportedly still undergoing repairs after it was hit by an Israeli airstrike in January. 

Sanctions on Syria 

The urgent need for the removal of illegal sanctions on Syria is not limited to the immediate earthquake recovery efforts. The fact is that Western sanctions had already precipitated an economic and infrastructural collapse in Syria well before the earthquake hit this week. 

In November 2022, following a visit to the country, UN Special Rapporteur Alena Douhan described the impact of the “outrageous” and “long-lasting” unilateral sanctions that were “suffocating” millions of Syrians. Douhan stated that 90% of Syria’s population was living below the poverty line, and access to food, water, electricity, fuel, shelter, transportation, and healthcare were limited. She added that more than half of the country’s vital infrastructure had either been completely destroyed or was severely damaged. 

At the same time, unilateral sanctions on key sectors including oil, gas, electricity, and trade had “quashed” the national income and undermined efforts towards economic recovery and reconstruction. 

“Maintaining unilateral sanctions amid the current catastrophic and still-deteriorating situation in Syria may amount to crimes against humanity against all Syrians,” Douhan had warned.

Threats to public health and food security have been heightened due to the unavailability of equipment and spare parts to fix water distribution and irrigation systems. There are acute disruptions in access to electricity, which have also impacted the functioning of medical equipment in hospitals.  

As the US boasts of its “commitment to support the people of Syria through their ongoing earthquake crisis,”  the question arises: what does a 180-day waiver on earthquake relief transactions actually achieve in the face of this level of destruction? 

As Syria looks towards long-term reconstruction and recovery, any commitments of support or assistance are rendered meaningless in the absence of the total lifting of the illegal and inhumane sanctions that continue to choke the country. 

Barcelona city decides to cut all official ties with Israel over its systemic violations of Palestinian rights

Barcelona becomes the first city administration in the world to suspend relations with Israel since the BDS movement was started. It has also announced the suspension of the twinning agreement with the Tel Aviv city council

February 10, 2023 by Peoples Dispatch

Barcelona Mayor Ada Colau. (Photo: Blanca Blay via Catalan News)

Ada Colau, Mayor of Barcelona, announced on Wednesday, February 8, her city’s temporary suspension of all official relations with Israel over its apartheid practices and systematic violations of Palestinian rights in the occupied territories.  

Colau wrote a letter to Israeli Prime Minister Benjamin Netanyahu on Wednesday announcing the decision to suspend relations with Israel. She also announced that the twinning agreement with the Tel Aviv city council, signed in 1998, was suspended “until the Israeli authorities put an end to the system of violations of the Palestinian people and fully comply with the obligations imposed on them by the international law and the various United Nations resolutions.” 

Colau clarified that the decision was solely related to the institutional relationship between authorities in Barcelona and Israel, and did not affect relationships between the residents of Israel and the city. 

The decision was taken after a petition for the same was signed by a federation of over 110 human rights groups—called Lafede.cat—from  and more than 4,000 residents of the city. 

Lafede.cat, also known as the Organizations for Global Justice, had first published its demands in May 2021 during the 11-day-long attack on the besieged Gaza strip by Israel, in which more than 250 Palestinians were killed and over 2,000 injured. It had also demanded that the Spanish government stop selling weapons to Israel and end all business deals with Israeli companies.   

Action against Israeli apartheid

Colau claimed that the petitioners had asked her to “condemn the crime of apartheid against the Palestinian people, support Palestinian and Israeli organizations working for peace, and break off the twinning agreement between Barcelona and Tel Aviv.”   

The Deputy Mayor of Barcelona and the leader of the Catalan Socialist Party in Barcelona, Laia Bonet, opposed the decision and demanded the “restoration” of the relationship. She said that authorities should make efforts to “reinforce, not weaken, the role of Barcelona in the world,” Catalan News reported.

The Israeli Foreign Ministry responded to the news by claiming that the decision was not backed by the majority of the residents of Barcelona. Some Jewish groups have also called the decision “sophisticated anti-semitism.”

This prompted a wave of international solidarity in favor of Colau and her party Barcelona En Comú on Thursday. 

European Jews for Just Peace, a federation of 12 European Jewish peace groups, supported Colau’s decision, claiming that “boycott is a legitimate, time-honored method for civil society to protest against a country that commits human rights abuses. Mayor Colau is following the footsteps of those who boycotted apartheid South Africa.”

The Palestinian national committee of the Boycott, Divestment, and Sanctions (BDS) movement also welcomed the decision, “[saluting] the Mayor of Barcelona.” It also noted that Barcelona’s move to suspend ties with Israel was “reminiscent of the historic and courageous city councils that pioneered cutting ties with apartheid South Africa.”  

The decision will be voted on in the city council on February 24.