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7 Things To Expect From The Oil And Gas Industry In 2020

"Aerial photograph of a large oil tanker, preparing to take on a load of crude oil."GETTY

David Blackmon Dec 19, 2019, 11:10am

In keeping with what has become an annual tradition, we took out our handy crystal ball – manufactured from petroleum-based materials, of course – for a look at expectations for the year to come in 2020. What the crystal ball revealed is a mix of projected outcomes, some of which were entirely predictable, others not so much.

Here we go:

  • The domestic rig count will be largely stable, at least through the first six months of the year. Indeed, we saw what had been a steady fall during the final six months of 2019 become arrested during the past few weeks as companies drove completion of their year’s drilling budgets and prepared the field to quickly execute on their budgets for the first half of the new year. The Enverus daily rig count actually added 33 newly-active rigs during the first two weeks of December, while the Baker Hughes weekly count also saw a slight rise. This trend will carry over into the new year, and we should see the situation remain relatively stable, at least until companies revise their budgets for the second half of next year.
  • Bankruptcies involving small to mid-size producers will accelerate. As I wrote earlier this month, ongoing tight access to capital markets has created an upstream industry segment of “haves” and “have-nots,” with the smaller to mid-size producers mainly feeling the squeeze. This tightened access to capital will inevitably lead to more bankruptcy filings, and that in turn will inevitably lead to…
  • …an increased level of mergers and acquisitions taking place during 2020. As with the rig count stabilizing, we have already seen this begin to take place during December, with several sizable transactions being announced, including WPX Energy’s announcement of its $2.5 billion purchase of Felix Energy, a large operator in the prolific  Delaware Basin region of the Greater Permian Basin. The service sector of the oil and gas business has also seen a series of mergers and acquisitions in recent weeks. Expect this level of activity to carry over into the new year. The “haves” will continue to have more in 2020 as the “have-nots” slowly fade from view.
  • Commodity prices will remain range-bound in 2020. Simply put, the globe is awash in both oil and natural gas, a situation that will no change in the coming year. The price for West Texas Intermediate has broken above the $60 per barrel ceiling it experienced throughout most of 2019, but that is likely to be a short-lived phenomenon as the realities of the ongoing market over-supply will eventually dampen the current bullish market sentiment. Even less reason exists to expect any sustained improvement in the long-depressed natural gas price, although a sustained cold winter in North America could, if it materializes, provide relief for a few weeks.
  • Shale production will just keep rising, despite all the fright media coverage predicting doom and gloom. The mix of producers will continue to evolve, as under-capitalized, highly-leveraged producers are merged into or acquired by larger, more integrated companies. That will happen because that is what market forces are demanding, and there is currently no one in government at any level willing or able to intervene to disrupt the market dynamics. That could all change in 2021 should an interventionist like Elizabeth Warren or Bernie Sanders manage to win the presidency, but for 2020, the markets will rule.
  • U.S. exports of both oil and natural gas in the form of LNG will continue to escalate. The EIA estimated the U.S. became a next exporter of oil for the first time in 70 years in September of this year, and we can expect more of the same in 2020 as production and export capacity at various Gulf Coast port facilities continue to rise.
  • Finally, and happiest of all, events in the Middle East, such as September’s missile attacks by Iran on Saudi oil infrastructure, will continue to have little if any real impact on oil prices. This shift in U.S. strategic interests in that unstable part of the world is a true, tangible gift to U.S. national security delivered by the shale revolution.

When President Donald Trump recently announced that he will soon withdraw another 4,000 U.S. military personnel from the 18-year-long quagmire in Afghanistan, Defense Secretary Mark Esper said the withdrawal can and will take place “with or without” a peace agreement in place with the Taliban. “I would like to go to a lower number because I want to either bring those troops home” to retrain for new missions or to “be redeployed to the Indo-Pacific to face off our greatest challenge in terms of the great power competition – that’s vis-a-vis China”, he said.

This shift in America’s compelling national interest in remaining involved in various intractable conflicts in the Middle East region is the direct result of the country’s enhanced energy security brought about by the industry’s ability to extract massive volumes of oil and natural gas from shale. That ability was made possible by the use of hydraulic fracturing, or Fracking.