5th January 2024

Friday already eh. Who doesn’t love a short week?

Here’s what’s up today in all things oil, gas, and energy:

• 🌾 A shorty story of power in farming

• 💰 APA bags Callon for $4.5bn

• ✋ Applying the brakes to US oil growth

• 😬 Good and bad news for European decarbonisation

• ➕ plus Ithaca CEO steps down; sharp moves in oil inventories; how the Houthis are costing you.

Have a good one. See you Monday.

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• APA snaps up Callon for $4.5bn - the new year has started where the last one left off, with big bucks being spent in the US shale patch. The all-stock deal, which bags APA ~120k net acres in the Permian and ~ 104 kboe/d of production, assigns a ~14% premium to Callon’s share price. APA shareholders don’t like the deal though: its share price fell by ~7% on the announcement, supposedly over concerns about lack of synergies and the quality of the acreage.

• EOG and the US applying the brakes - the company president said that its oil output growth, and that of the US as a whole, will be “considerably less” than it was last year due to steeper declines and reduced drilling. OPEC will be hoping he’s right. The US added ~900 kb/d of crude production in 2023.

• Large draw in crude, mega build in gasoline - the EIA’s weekly report showed that crude stocks fell by 5.5 mmbbls in the week ending 29th Dec. Meanwhile, gasoline inventories saw a massive jump of 10.9 mmbbls, their largest weekly rise in over 30 years. For tax optimization reasons, the final week of the year often sees big changes in inventories.

• Phillips66 moving ahead with divestments - last year the company said it was looking to sell $3bn in non-core assets in 2024 and the CEO remarked yesterday that it was in active discussion to do so. They’re in no rush, though: “we don't have a sense of urgency...It's really going to be a function of whether someone puts a greater value on these assets than we do."

• Exxon writing down California assets - it’s expecting to take a $2.6bn hit due to “continuing challenges in the state regulatory environment”. Chevron made a similar announcement earlier this week. Anti oil & gas policy in The Golden State is taking its toll.

• New regs on shale wastewater disposal - in an attempt to reduce earthquakes, drillers in the Culberson and Reeves counties in the Permian will no longer be allowed to inject their wastewater into deep wells. They’ll have to pipe or truck the stuff away instead.

🏰 Europe

• Ithaca CEO steps down - after 2 years on the job, Alan Bruce has left his role at the helm of the North Sea indy with immediate effect to “pursue new opportunities”

⛩️ Asia & Oceania

• Giant buyer meets rising star supplier - India and Guyana have a signed an MoU that includes cooperation in supplying India with Guyanese crude and the participation of Indian companies in Guyana’s booming oil sector.

🌍 GEOPOLITICS & MACRO

• Shipping rates spike on Red Sea disruption - the spot rate for shipping a 40-foot container from Asia to northern Europe has surpassed $4,000, a 173% increase since the diversions away from the Red Sea started in mid-December. The impact of those pesky Houthis will start hitting your pocket soon.

• Blinken heads back to the ME to fight fires - the US top diplomat has returned to the restive region for the fourth time since the Hamas terror attacks on 7th October as “escalation” remains on everyone lips.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Poisoned chalice for European decarbonisation - Germany’s GHG emissions fell to their lowest levels since the 1950s last year, while the share of hydrocarbons in the UK’s power mix declined to a 66 year low of ~33%. But don’t celebrate too soon: a large share of these declines have been thanks to lower power demand as businesses shut down and consumers tighten their belts in light of the UK and Germany having some of the highest power prices in the world. And to top it off, both countries are still not on track to hit their net-zero goals despite all this sacrifice…

🛢️ BOTTOM OF THE BARREL

Today, a farmer wields as much power as 5,200 of his ancestors…

Sometime around 12,000BC your nomadic many-great grandfather got tired of a life on the move. He settled down. Agriculture was born.

But working the hard earth with sticks and stones was a toiling existence. His body could only muster ~100 W of sustained power.

Things got a little better a few thousand years later. Oxen were domesticated and put to work.

Your slightly-fewer-great grandfather could now use the strength of these hardy bovines to do his job. The power of a pair of oxen ploughing a field?

500 W. A 5x improvement. Not bad.

But the animal kingdom had even more to offer.

Our ancestors soon harnessed a better suited beast to do our bidding: horses.

And a farmer holding the reins of six large stallions now wielded 5 KW of power. A 50x increase compared with the original farmers.

Now we’re talking.

Fast forward to today.

Animals are out. Internal combustion engines are in. Agriculture has been industrialized.

Giant machines, not men or mules, work the earth.

Today, you could take the keys of a cutting edge tractor and control a staggering 520 KW of power.

This means that you alone could do the same job as 5,200 of your early settler ancestors.

That is the miracle of hydrocarbons.

👋 BEFORE YOU GO 

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Thanks for reading. Have a day out there. 🛢️🛢️