The Oil And Gas Situation: Exxon Not Panicking, Permian De-Bottlenecking

Some very interesting developments on the oil and gas front this week related to the Permian Basin:

The Permian bottleneck continues to de-bottleneck. - Reuters reports that crude loadings at the Port of Corpus Christi (PortCC) rose to a record 1 million barrels of oil per day (bopd) last week, after two major new pipelines carrying Permian Basin oil - EPIC and Cactus II - went into service. Those lines have a total capacity of more than 1 million bopd, so the near-doubling of deliveries from July's average of 525,000 bopd is not surprising.

As I wrote last month, PortCC and its CEO, Sean Strawbridge, have managed a furious level of new development over the past two years to ensure the area is ready for the new influx of Permian crude that would inevitably be coming its way as these new pipeline systems are built-out. With several more pipeline projects in the construction phase, last week was just the first major test of that expanded capability.

ExxonMobil not panicking over threats to oil market share just yet. - ExxonMobil CEO Darren Woods told the Barclay's conference in New York that his company will remain active in the mergers and acquisitions space for the foreseeable future as it continues to grow its oil and gas portfolio.

Despite all manner of fright scenarios to the contrary, Woods said Exxon believes that oil and gas will remain a growth industry for decades to come , adding, “Energy transitions take a long time. In the meantime, the world’s rising demand for energy must be met.” 

Projecting oil and natural gas demand to grow over the long-term at healthy rates of .6% and 1.3% per year, respectively, Woods said that his company would be actively evaluating potential takeover targets. “If there is the opportunity to acquire something that bring unique value to Exxon Mobil, we’ll be in a position to transact on that,” Woods said. 

While acknowledging that ExxonMobil continues to make major capital investments in international mega-projects in places like Guyana and Papua New Guinea, Woods promised the company would “retain the capacity for a sizable acquisition." He added that his company is keeping a "watchful eye" for deals in the prolific Permian Basin, where he expects "consolidation to happen over some period of time."

Is Concho one of those potential takeover targets? - One of many actions we see independent producers take to make themselves a more attractive takeover target is the high-grading of their portfolios by divesting non-core assets. One of the big producers in the Permian Basin, Concho Resources , announced just such a transaction this week, selling a portion of its New Mexico production and leasehold to Spur Energy LLC for $925 million.

Obviously, there are other reasons for divesting non-core assets, and Concho asserts that it plans to use the proceeds from the transaction to pay down debt and fund a stock buy-back program. But regardless of Concho's intentions, one likely result of this deal is that the company now looks more attractive to a company like ExxonMobil or Chevron as a potential takeover target.

Concho's remaining Permian leasehold areas have some degree of connectivity to both integrated giants. Interestingly, even more Concho acreage lies adjacent to leases held by Oxy, which is in the process of absorbing Anadarko . As I noted back in May, the Permian is rich in potential takeover targets, which will likely create a very active situation in the mergers and acquisitions space over the next few years.

Bottleneck relief is also coming for Permian natural gas. - Permian oil hasn't been the only constrained commodity over the last couple of years - the same situation has applied to natural gas. As several new natural gas takeaway pipelines advance through the construction process, the LNG industry is getting ready to accommodate rising export demand.

This week brought announcements of major progress from two Texas Gulf Coast LNG export facilities: Freeport LNG and Cheniere Energy's Corpus Christi LNG.

On September 3, Freeport LNG announced that it shipped its first commissioning cargo of LNG produced by its first liquefaction train. As reported by Reuters, "About 150,000 cubic meters of LNG was loaded on board the LNG tanker LNG Jurojin, which left the Freeport LNG terminal on Sept. 3, the company said. The tanker is currently bound for Jebel Ali, in the United Arab Emirates, according to shiptracking data on Refinitiv Eikon."

On the same day, Cheniere announced that the months-long startup process on its second train at Corpus Christi LNG had been completed , and that general contractor Bechtel has now turned over care, custody and control of the train on September 4. The start-up of Train 2 now gives Cheniere seven active LNG production trains - five at its Sabine Pass facility and two at Corpus Christi LNG.

The company's plans ultimately contemplate six active trains at Sabine Pass and four at Corpus Christi. The company expects commercial deliveries of LNG produced by Train 2 to commence in May, 2020.

Thus, as the takeaway capacity bottleneck begins to unwind, all of the recent construction and startups at ports along the Gulf Coast have calmed prior fears of another bottleneck developing further downstream.