Energy Deals, Commodity Pricing, and Other 2021 Trends: Q4 Oil and Gas Industry Update
During the fourth quarter of 2021, global oil markets paced toward a peak—highest since the pandemic’s onset—until the Omicron variant emerged and stifled the gains in November. The International Energy Agency (IEA) noted much of the pessimism brought on by the variant had subsided by December, and oil prices rose near third-quarter levels. With the recent wave of COVID-19 cases, the IEA expects global oil demand to slow temporarily then resume an overall recovery.
Oil Rig Counts
2020 vs. 2021
267 vs. 480
Gas Rig Counts
2020 vs. 2021
83 vs. 106
Total Rig Counts
2020 vs. 2021
350 vs. 586 (67.4% increase)
Commodity price drivers and rig counts
Oil prices recovered in December from November’s decline, with West Texas Intermediate (WTI) crude closing the year at $75.21 per barrel (/bbl), increasing 14% from the previous month but remaining flat compared to the third quarter. WTI prices increased 55% year-over-year. Similarly, Brent crude closed December at $77.78/bbl, up 10% from November, down 1% from the third quarter, and up 50% from the prior year. Despite the surge in COVID cases, increased holiday travel and the continued reopening of economies around the globe pushed prices higher at the end of the quarter.
The US Energy Information Administration’s (EIA) short-term energy outlook (STEO) continues to emphasize heightened pandemic-driven uncertainty while forecasting oil consumption and production increases. Global consumption in 2021 averaged 96.9 million barrels per day (b/d), an increase from the prior year and likely to grow by 3.6 million b/d this year and 1.8 million b/d in 2023. OPEC member countries and the United States increased crude oil production during 2021, averaging 26.3 and 11.2 million b/d, respectively. Also, the EIA is forecasting a record-breaking US crude oil production of 12.4 million b/d for 2023, which would surpass the 2019 record of 12.3 million.
For natural gas, the Henry Hub (HH) spot price ended the year at $3.76 per million Btu (/MMBtu), dropping rapidly in December and down 27% from the third quarter. Mild temperatures across the United States snapped demand, resulting in lower-than-expected prices during November and December. By contrast, HH year-over-year prices were up 45% from $2.59/MMBtu at the end of 2020. The HH natural gas spot price averaged $3.91/MMBtu in 2021, reaching $5.51/MMBtu in October before the weather drove prices down through the end of the year. The EIA expects HH average spot prices to decline to $3.82/MMBtu during the first quarter of 2022.
At the end of 2021, US energy producers added to the rig count again this quarter with a total of 586 active rigs (480 oil and 106 natural gas), according to Baker Hughes. This increase represents a 12% change from the third quarter and a 67% change from the prior year.
The Railroad Commission of Texas also showed 756 new drilling permits, which increased 78% from the prior year’s 424 permits. A monthly trend of increased drilling permits occurred throughout 2021.
M&A activity, capital markets, and capital projects
2021 presented a historic increase in mergers and acquisitions (M&A) deal volume marking the first year to total $5 trillion in value across all sectors. According to S&P Global, organizations within the energy sector sought out M&A transactions to buffer against the constant uncertainty presented by the pandemic. The activity will impact the sector for years, especially regarding the transition toward clean energy.
Q4 2020 vs. Q4 2021
55.0% increase from $48.52 to $75.21
Q4 2020 vs. Q4 2021
50.2% increase from $51.80 to $77.78
Natural Gas (HH)
Q4 2020 vs. Q4 2021
45.2% increase from $2.59 to $3.76
Mergers and acquisitions
October announcements included plans by Crestwood Equity Partners LP to expand its US shale basin footprint by purchasing Oasis Midstream Partners LP for approximately $1.8 billion, likely to close in early 2022. Phillips 66 also announced it will acquire all of the remaining outstanding common units of Phillips 66 Partners, a transaction worth approximately $3.4 billion.
In November, Chesapeake Energy Corporation added 900 drilling locations in the Haynesville Shale, acquiring Vine Energy Inc. for $2.2 billion. November news reports also showed Lundin Energy exploring strategic alternatives, including a sale valued at approximately $10.2 billion, which could result in one of the largest recent European oil and gas deals. Lundin Energy and Aker BP later announced plans to merge and become the second-largest oil and gas producer in Norway.
In December, Southwestern Energy Company acquired GEP Haynesville for approximately $1.9 billion, and Southwestern became the largest natural gas producer in the Haynesville Shale. ConocoPhillips announced its all-cash acquisition of Shell’s Permian assets for $9.5 billion. The purchase provides ConocoPhillips with 600 miles of pipeline and 225,000 net acres in the Delaware basin. In Brazil, an auction was held featuring two offshore fields with commercially recoverable oil resources; the rights to develop the Sepia field went to TotalEnergies, Qatar Energy, and Petronas while the rights to the Atapu field went to Total, and Shell in a total bid equaling $2 billion.
Capital projects and clean energy
Guyana announced plans for a 135-mile pipeline to be built this year (to provide transportation of Exxon Mobil Corp.’s discovery of a massive offshore field), along with plans to construct a major gas-fired power plant. The plans will position Guyana to become one of the decade’s largest South American oil producers, cut costs and increase local access to energy.
On October 20, Vine Energy (later acquired by Chesapeake Energy) concluded drilling the longest onshore horizontal well in Louisiana. The $6 million well measures 15,240 feet across and 27,520 feet deep.
In November, TotalEnergies SE announced plans to invest $2 billion into Libya’s Waha oil project, to enhance production by roughly 100,000 b/d, increase output at the Mabruk field, and support the local grid by building 500 megawatts of solar power. As the country emerges from a decade of conflict and civil war, the investments in Libya aim to produce 2 to 2.5 million b/d within the next six years, which will require significant foreign investment.
Construction started in November for America’s first major offshore wind farm, Vineyard Wind 1, which will supply 800 megawatts of power becoming available to the grid in 2023. Located 15 miles off the coast of Martha’s Vineyard, the wind farm is being constructed through a joint venture between Avangrid Renewables and Copenhagen Infrastructure Partners.
TerraPower, a start-up seeking to revolutionize nuclear reactor design, plans to build its first advanced nuclear reactor in a Wyoming coal town. The project costs roughly $4 billion, half of which will be funded by the US Department of Energy’s Advanced Reactor Demonstration Program, and will supply 345 megawatts with potential to increase that capacity up to 500 megawatts.
Backed by some €50 billion in investment, German power company RWE laid out plans for the upcoming decade, including investing around €5 billion per year in wind, solar, batteries, flexible generation, and hydrogen. RWE is targeting a green installed net capacity of 50 gigawatts in 2030.
In December, Spanish Iberdrola and Swedish H2 Green Steel announced plans to invest $2.6 billion in a green hydrogen facility development on the Iberian Peninsula, which will use electrolysis to achieve a 1-gigawatt capacity, more than three times the current global capacity achieved through this method. The green hydrogen generated from the facility will be used to produce 2 million tons of direct reduced iron.
Expanding its solar portfolio, Shell New Energies US continues to seek eventual net-zero emissions, having acquired large utility-scale solar and energy storage developer Savion LLC, which currently has 18 gigawatts of solar power and energy storage under development for customers.
According to Debtwire’s Data on Transactions report, the energy sector saw three Chapter 11 bankruptcy cases and one Chapter 15 bankruptcy case during the fourth quarter of 2021, whereas six cases were filed in the prior quarter.
In November, Alto Maipo SpA, a Chile-based run-of-the-river project, along with its subsidiary Alto Maipo Delaware LLC filed a Chapter 11 petition, reported liabilities of $2 billion. CUDA Energy Inc., a Canada-based group of oil and gas exploration and production companies with assets in Alberta and Wyoming, filed a Chapter 15 Petition for Recognition of a Foreign Main Proceeding in Canada, and it reported liabilities of $70 million.
In December, Houston based E&P company Tabula Rasa Partners LLC filed for Chapter 11 bankruptcy and reported $10 to $50 million of both assets and liabilities. Strike, LLC, a North American pipeline, facilities, and energy infrastructure solutions provider, also filed for Chapter 11 bankruptcy and reported $100 to $500 million of both assets and liabilities.