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The Energy Council's E&P Companies to look out for in 2022
5th May 2022
by David Stent, Content Editor, Energy Council
For those within oil and gas production, there is a quiet feeling of “I told you so” to those pursuing a more radical energy transition agenda. The core warning that was not heeded in the last decade was that, oil and gas investments are necessary to secure affordable energy for consumers and to mitigate the power of pariah states controlling fossil fuel reserves.
That being said, the decline in fossil fuel investments is a good lesson for both sides of the argument. For fossil fuel producers, it was the necessary wake-up call to decarbonize their sector or find oneself struggling to attract capital. For climate activists, the dawning reality that a more pragmatic approach to the cessation of fossil fuels may be required – by encouraging investment in the most climate-conscious companies.
The Energy Council has selected some of the most promising oil and gas companies to look out for this year. We examine their unique approaches to maintaining relevance within the sector and their approaches to reimagining their business models.
SEPLAT – An new-era for West African E&P
The West African nation state has relied heavily on the royalties from oil and gas exploration to prop up their economy over the decades, especially beneficial to the European Supermajors who developed the nascent industry back in the 1960s. Since then, the Nigerian oil and gas sector has experienced a rollercoaster of good fortunes, misplaced profits and environmental concerns.
The status quo of the sector is quite different today than to what it once was, with a maturity in the market that has brought increased interest into West Africa fossil fuel developments. SEPLAT is a key actor in this interest, a company that has shown a dedication to both the local market, local content support and to the global efforts to reduce atmospheric impacts of energy production.
SEPLAT is looking to confirm the purchase of ExxonMobil’s shallow water assets for $1.3 billion, with an additional $300 million on contingents – making the company the leading Nigerian independent operating at present. Guided by Chairman and Co-Founder Dr. Ambroise Orjiako and CEO, Roger Brown the exceptional growth looks likely to maintain for some years.
SEPLAT could well be considered a model for independents emerging from the developing world to become internationally competitive E&P companies.
Harbour Energy – From the North Sea to SEA
Harbour’s rise as one a leading global producer has been watched closely by investors for their excellent stewardship over the Covid pandemic to drive superior returns toward the end of 2021. Now with the completion of the reverse-takeover of Premier Oil, reduction of $800 million of debts and increased productivity – Harbour is set to continue their growth outlook.
Investors can look forward to enjoying their share of $100 million in dividends with an operating cash flow of $1.6 billion, free cash flows of $678 million and EBITDA of $2.4 billion – up 36%. When looking back at the disaster price period in 2020 when producers were hemorrhaging cash, in Harbour’s case nearly $800 million, such a turnaround reflects a company under sound stewardship.
Now occupying the spot as the LSE’s largest independent oil and gas producer, Harbour’s UKCS asset base together with a selection of promising overseas operations in Vietnam, Mexico and Indonesia has established the company as a global competitor in a very short timeframe.
Maverick Natural Resources – Soaking up US onshore opportunities
Maverick Natural Resources’ acquisition strategy has positioned the Permian powerhouse to take advantage of heightened oil and gas prices. As seen throughout the sector, market consolidation is underway across a range of jurisdictions, largely a consequence of cash-flow crises caused by Covid. Maverick NR’s strategy was to rationalize their portfolio, first with a $20 billion acquisition of both Shell and Concho Resources’ Permian Basin assets.
More recently by purchasing ConocoPhillips ‘assets in the Central Basin Platform and Northwest Shelf covering 144,500 net acres in West Texas and Southeastern Mexico, for $455 million’ – Maverick NR have swiftly diversified the reach and opportunities of their portfolio.
“While other companies have been challenged in terms of financing, Maverick’s large asset base, low leverage, proven operating model and track record of success have allowed it to access capital markets when others could not. This includes the first committed energy reserve-based financing in two years, led by JP Morgan,” Maverick officials said.
The company’s responsible approach to ESG concerns reflects the commitments by major financiers; JPMorgan Chase Bank, N.A.; Royal Bank of Canada; Citizens Bank, N.A.; KeyBank National Association; and KeyBanc Capital Markets Inc. to syndicate an RBL facility for the facility. In the current climate, such backing recognizes a belief by financial institutions that Maverick will be a responsible and productive partner.
EQT – Leading the sector on mitigating methane emissions
EQT has steadily climbed its way to the top of the US gas markets, now holding the position of the country’s largest gas producer. Yet this title comes with a burden and responsibility to supranational climate goals, of which gas is a significant contributor to methane emissions. It is for this reason that EQT has effectively sought to measure, monitor and mitigate the excess emissions from their operations by partnering with the industry-leading emission certifications of Equitable Origin and MiQ.
By standing up and taking accountability for their Scope 1 & 2 emissions, it is no coincidence that EQT mangages to stay ahead of many of it’s competitors. While some organisations remain resistant to change and skeptical to the climate crisis, it is those who can adapt and present the best ‘story’ to investors that secure the market share.
Like many of its competitors, the year-on-year growth looks exceptional, aided by the current high-price environment – however, EQT’s approach to ‘owning’ their emissions will become increasingly critical as the dual-dilemma of energy access and energy transition come into conflict. A 52-week ‘high’ for the share price saw a rise of 364%, and while these are distorted due to Covid, the re-establishment of the need for oil and gas investments will position EQT as a strong home for North American capital.
Woodside – Merger with BHP creates global company with conquering capabilities
Woodside’s successful merger with BHP’s oil and gas portfolio has created one of the world’s most exciting E&P companies, the combined group value an estimated $40 billion. Such is the size and reach of Woodside’s operations now, that the company immediately became one of the ten largest O&G independents on the planet.
The company will immediately seek to create up to $600 million in cost-saving synergies over the next year, as the merged group consolidates and streamlines its operations across the world. Taking on BHP’s international assets, Woodside radically expanded beyond their Australasian and West African base to the Gulf of Mexico, Trinidad and Tobago, Algeria and Mexico – in addition to the exploration licenses granted in Egypt, Canada and Caribbean states.
BHP’s shareholders will own 48% of the new group, with Woodside owning the remaining share. It will be the “high margin oil portfolio, long life LNG assets and the financial resilience to help supply the energy needed for global growth and development over the energy transition” – that will set Woodside up for both short and long-term success. Energy transition commitments are core to accessing financing and investment, and Woodside has been early contributors to the development of the hydrogen economy with the H2Perth, H2TAS (Tasmania) and H2OK (Oklahoma) all progressing quickly.
Woodside’s rapid expansion of projects indicates a company that envisions themselves as global players in the upstream markets throughout the world, whether these be fossil fuel-based or more clean and sustainable projects.
NEO Energy – Acquiring control of the North Sea
NEO Energy is another North Sea producer whose approach to acquiring maturing assets from international NOCs and majors. This approach reflects the broader trend of independents taking advantage of the Supermajors’ strategic divestment strategies, requiring them to lose high-emissions assets. In turn, this has provided an opportunity for climate conscious producers with a progressive vision for balancing oil and gas demand with responsible production techniques the chance to forge this new path.
NEO’s acquisition strategy has undoubtedly been aggressive, seeking to purchase assets quickly in the belief that they can maximise the lifespan of brownfield assets, having purchased assets from: TOTALEnergies, CNOOC International, Zennor Petroleum, JXNippon and entering into a JV with HitecVision to purchase ExxonMobil’s assets.
Eco Atlantic – Amplifying energy access to Africa and the Americas
Our final company is Eco Atlantic, a Canadian Registered E&P company that has established a reputation for being early entrants into frontier basins around the Atlantic in Guyana, Namibia and more recently South Africa. Concurrently, Eco is developing a renewables portfolio of utility-scale projects throughout Europe – this dual-approach to energy transition concerns is, again, an inherently positive characteristic in their outlook. Drilling in the less developed regions around the Atlantic simultaneously provides a degree of security to the energy outlooks of these energy constrained states.
Despite the ample resources in the offshore waters of the Atlantic, the troublesome seas have long created difficulties for drilling. Such barriers appear to have been allayed by the use of more robust rigs capable of accessing deeper wells.
Eco is expected to begin drilling on their South African block 2B, which is estimated to hold up to 300 million boe and cost about $20 million to complete the drilling operation. To assist in financing this project, Eco raised $25 million in early April through a ‘share placing to institutional investors’ that was quickly oversubscribed.
If you’re looking for an exciting small-cap with big ambitions, keep an eye on Eco Atlantic, a company with exceptional management team whose mission and commitment to bring energy access to underserved regions is needed now more than ever.