Rising global energy consumption has helped the oil and gas sector recover after it lost significant ground due to COVID-19, with experts saying adaptability is key to the sector’s ongoing survival.
In this article:
- Oil and gas gaining strength again
- ESG concerns
- Australian hopes
Economies around the world have been reviving as consumer confidence rises alongside vaccine coverage, leading to increased energy consumption — a good sign for oil and gas.
The Dow Jones US Oil and Gas Index has gained 46% throughout 2021 as hopes rise for increased energy penetration amidst a global shift away from petroleum and coal, and S&P Global Platts reckons supply is expected to grow faster in 2022 than it did in 2021.
Oil and gas gaining strength again
“It has been a really interesting year for oil and gas, we’ve seen different fundamentals throughout the year,” Morgans senior resources analyst Adrian Prendergast says.
“With countries re-opening and removing restrictions, we’ve seen improving energy consumption.
“Against that, we’ve seen fairly stagnant supply responses against improving demand.
“The supply and demand mismatch when there’s a sudden drop in consumption masks the fundamentals of these energy resources.
“Oil was weaker than it should have been in the US market, with the WTI crude oil price dropping into negative territory.
“That suggests that the fundamentals are weak, but really the vast majority of the sudden demand loss was from COVID restrictions.
“Gas has been more stable, we’re expecting seasonal demand trends to underscore solid supply, while oil has been much more volatile.
“We’re going to see continued demand beyond the recovery we’ve already seen."
ESG concerns
One big question surrounds what role oil and gas will play as governments around the world attempt to pollute less to stifle climate change.
Prendergast says the largest oil and gas companies, known as the supermajors and including companies like BP, ExxonMobil and Shell, are doing their best to trumpet their environmental and social governance (ESG) bona fides.
“The larger the enterprise, the more critical a priority it is to be investing in ESG and decarbonising, and we’ve seen plenty of moves towards this and ultimately what that does is steepen the cost curve,” he says.
This has been playing out in Australia recently, too; Shell purchased Powershop, a green online energy retailer.
“In Australia, we’ve seen the fundamentals in our market changing rapidly and trying to become more adaptable to global trends.
“Adaptability to the ESG backdrop is critical for surviving in the industry going forward.
“To survive amongst the oil and gas supermajors, you need to be bigger and self-funding.
“At the smaller end of town, companies are looking to be really conservative with their balance sheets.”
Australian hopes
Calima Energy Ltd (ASX:CE1) is one of several small-cap oil and gas explorers in a promising position thanks to its landholding in the Montney Formation, a major oil and gas-producing area in Canada.
In mid-December, the company finished drilling the second well (Pisces #2) of its two-well horizontal Glauconitic (GLCC) drilling campaign at the core Brooks area in Alberta, Canada.
Pisces #2 was drilled to 3,953 metres measured depth and about 2,720 metres of the well was horizontal in the Glauconitic Formation, with well logs indicating reservoir quality as expected and oil and gas shows as prognosed.
Brookside Energy Ltd (ASX:BRK) has spudded the high-impact Rangers 36-25 SXH 1 Well, its second well in the SWISH Area of Interest (AOI) in the world-class Anadarko Basin of Oklahoma.
Rangers Well was spudded successfully on the evening of December 11, 2021, Oklahoma local time, by Kenai Rig 18 after completion of rig-up and equipment testing.
Buru Energy Ltd (ASX:BRU) is in the process of drilling its Unagni 8H development well in Western Australia’s Canning Basin. The company’s shares rose 6.98% intraday to hit a new two-year high following the announcement, significant in a beleaguered oil and gas market.
The Canning Basin is a geological unit in the Southwest Kimerley region, a large sedimentary basin which is one of the few remaining areas in onshore Australia that is under-explored for petroleum.
Buru holds the largest acreage of any company in the region, with multiple highly prospective exploration tenements adjacent to Buru’s 50% owned Unagni Oilfield.
And closer to home, Emperor Energy Ltd (ASX:EMP) is making progress in the development of the Judith Gas Project, 40 kilometres offshore from Orbost Gas Plant in the Gippsland Basin of Victoria.
The company is preparing to engage well management consultants AGR to commence the application process to secure necessary approvals from relevant government authorities to drill the Judith-2 Well.
Notably, Emperor Energy is in the process of in-depth discussions and negotiations with potential exploration partners to fund the Judith-2 appraisal well.
Looking ahead, the company is focused on achieving first gas sales from Judith Gas Field in 2027.
- Daniel Paproth