Citi Global Energy & Utilities Conference
Key Takeaways from the 2014 Citi Energy & Utilities Conference
19 May 2014 ¦ 32 pages ir.citi.com
Permian Cost Pressures Felt Across Region... — As discussed in Bob Morris’s
note last week (“ Citi Global Energy Conference: Takeaways from E&P
Presentations“), most North American E&P companies noted that the recent ramp
up in drilling activity in the Permian has applied some pressure on oil field services
costs in the region, albeit not significant. On a positive note, nearly every company
discussed ongoing improvements in drilling efficiencies throughout core plays with
well performance exceeding many type-curve expectations, cycle times declining,
longer laterals, more intense fracture stimulations. Of interest, there were no
discussions regarding commodity price outlooks or downside testing.
...With Overall Oil Services Demand Strong and Getting Stronger — Oil field
service executives were consistently upbeat on appraisals of domestic and
international growth. Excess OFS capacity in North America is being absorbed
quickly and pricing gains appear to be imminent. International demand growth also
appears solid in all regions except Latin America, which has its own pockets of
strength and weakness. The offshore drilling cycle has entered a short-term period
of rig oversupply however companies still seem confident in terms of long-term
demand and pricing. The IOCs’ increased focus on capital efficiency is leading to
closer collaboration on projects, a trend which should benefit the large, established
offshore construction players (Subsea 7, Technip, Saipem).
Infrastructure in Focus for Refiners & Midstream — The primary goal of the
refiners and midstream companies remains the development of infrastructure and
the related assets to allow producers the ability to achieve the highest netback and
refiners to achieve maximum feedstock flexibility. While regulatory hurdles such as
the oil export ban, the Jones Act and permits for cross border pipelines all increase
the frictional cost of moving oil, refined products, NGLs and natural gas, the industry
seems highly capable of working around these bottlenecks. All the companies at our
conference continue to develop the infrastructure needed to export processed
crude, NGLs and natural gas to other parts of the world.
Pre-Salt Angola Appears to Have Large Potential — A focus this summer will be
the Dilolo Prospect drilled by partners Statoil, Total and Genel Energy in the
southern Kwanza Basin. Genel Energy suggested that the potential could be as
much as 6 bn BOE, much bigger than the northern Kwanza Basin discoveries that
Cobalt and Maersk have made to date. The well will spud late Q2’14.
Utilities & Solar — Both regulated utilities and solar companies agreed rate design
change was likely, a utility/solar fight was not prudent and fixed charges were likely
to increase. For YieldCo(s), there was focus on the value of IDRs and the structure
of deals to be credit neutral to positive for their sponsors. Utilities with midstream
assets grapple with the implications of forming MLPs. Utilities questioned the
opportunity FERC Order 1000 creates (local utilities have significant advantages) |
