The global energy sector is shifting more resources to North America, both to take advantage of shale reserves and to reduce some of the political risk the sector faces in the rest of the world, according to Citi’s quarterly Global Oil round-up, led by Alastair Syme and Faisel Khan. Looking at Q3 earnings for the roughly 100 energy companies that Citi covers, they found four major trends that investors need to be aware of, two of which are discussed below.
Oil drilling continues to improve North American shale
Perhaps most importantly, drilling efficiency continues to improve for North American shale, and the current expectations for 2013 are 5% growth on top of a 5% reduction in spending. The boom in shale oil is a source of anxiety for other major oil producers including Saudi Arabia and Russia, whose biggest customer is turning into a competitor. Shale oil is politically controversial, so there is the downside risk of new regulation cropping up like the new rules impacting coal plants, but there doesn’t seem to be anything in the works right now.
ADW Capital’s 2020 letter: Long CDON, the future Amazon of the Nordics
ADW Capital Partners was up 119.2% for 2020, compared to a 13.77% gain for the S&P 500, an 11.17% increase for the Russell 2000, and an 8.62% return for the Russell 2000 Value Index. The fund reports an annualized return of 24.63% since its inception in 2005. Q4 2020 hedge fund letters, conferences and more Read More
At the same time, some US companies are selling assets in difficult areas including the Middle East, Nigeria, and Kazakhstan after continued operational disruptions, and two major Canadian heavy oil projects have started despite being questionable on a purely financial basis. “Their sanctioning is perhaps a reflection that industry sees a need to degear political risks against a backdrop of operational disruptions,” says the report.
Struggling European refineries
European refineries continue to struggle, as they have since at least last quarter, under growing pressure from US competition. This regional shift is taking place against a weak business environment for refineries worldwide, and European companies certainly aren’t the only ones having a hard time. After so much time waiting for the Keystone XL pipeline, North American refineries are already making other plans to increase capacity.
“Delays in offshore West Africa development look to remain an inherent problem in the industry, a function we think of high local content requirements and a subsequent knock-on effect on project costs,” says the Citi report, explaining why West African projects are now further up the cost curve. Total’s Kaombo project in Angola is now apparently “on ice,” and awards are coming more slowly in general.