Tag: Brent Crude

Hydrogen is a gas with an average atomic mass of 1.00794.

It is the first and most abundant element on the periodic table.

It is a constituent of most organic compounds, making up about 75% of the universe’s overall mass.

Hydrogen is colorless, odorless and tasteless.

The lightest of all elements, hydrogen consists of the smallest of all molecules, which means it can permeate through many materials.

Hydrogen is rarely available in its pure form on Earth, so it requires extraction from compounds containing hydrogen. Any compound with ‘H’ in its chemical formula has hydrogen as one of its constituents.

It is in hydrocarbons, methane (CH4) and water (H2O) has been a key driver in my portfolio and allowed me to outperform the market since 2020.

During the pandemic, I bought the stock dirt cheap close to $30, when the entire world was buying tech, growth, and alternative investments like crypto and pictures of rocks.

However, I sold Exxon Mobil and shifted my money to peers, like Canadian Natural Resources (CNQ), as I realized I had bet on the wrong horse.

Don’t get me wrong! This article is not going to be a hit job on Exxon or a promotion of my holdings.

After having received countless questions from readers who asked me why I don’t own Exxon anymore, I will use this article to explain why I believe that Exxon is not the right place to be if investors want to bet on higher oil prices.

Nonetheless, I will also explain why I keep a Buy rating on the stock, as it’s not a bad company.

So, let’s get right to it!

When Oil Rises, Exxon Underperforms

While the company may have massive reserves and growth opportunities in markets like Guyana, on top of consistent dividend growth and a credit rating of AA-, it is somewhat stuck in the middle.

The company is not the best place to be for dividend income. Other companies have much more favorable distribution policies.
It’s not as undervalued as other oil companies, in case investors are looking for opportunities with potentially more capital appreciation.
The chart below confirms my case (I’ll give you more details in this article).

Below, we are looking at the ratio between the XOM stock price and the Energy Select Sector ETF (XLE). That’s the black line. The red line shows the price of oil – except that it’s inverted!

In other words, the fact that the XOM/XLE ratio tends to follow the red line over time shows that when oil prices fall, investors prefer XOM. That makes sense, as it comes with a lot of safety, including a balance sheet with an AA- rating.

However, when oil prices rise (the red line drops), XOM performs poorly compared to the XLE ETF.

Also, please bear in mind that Exxon accounts for roughly a quarter of the XLE ETF.

Exxon and Chevron (CVX) combined account for almost 40% of the entire ETF.

Including dividends, XOM has returned 76% over the past ten years, beating the XLE by roughly 28 points.
However, as the lower part of the chart above shows (it’s the XOM/XLE ratio again), outperformance has entirely vanished over the past five years.

The last time XOM was the “best place” to be in energy was between 2014 and 2021.

This period of subdued oil prices put pressure on US shale producers, benefiting XOM as a safe haven in a troubled industry compared to XLE.

Exxon Is Good, But Not Good Enough
With all of this in mind, Exxon isn’t a bad stock. If you have owned Exxon for many years and want to avoid taxes by not selling, I don’t think it hurts to stick around.

After all, Exxon is making progress.

For example, the company is rapidly investing in growth projects.

As we can see above, major projects, totaling $30 billion, were completed on time or ahead of schedule and within budget.

These projects included the Beaumont refinery expansion, the only major refinery expansion in the United States in recent years.

The EIA posted the chart below last year, which shows the significance of this project, especially in light of higher post-pandemic demand and prolonged underinvestment in the industry.

top 10 U.S. refineries by operable crude oil distillation capacity
Energy Information Administration

On top of expanding its downstream (refining) footprint, the company is improving its upstream capabilities (producing oil and gas).

The company has an emphasis on two major basins:

The Permian. This is America’s most attractive basin, with deep reserves and attractive breakeven prices.
Guyana. This country has massive offshore reserves. S&P Global (SPGI) estimates that this nation has more than 11 billion barrels of oil in reserves.
Image
S&P Global

For Exxon, these two projects boast a competitive cost of supply, positioned below $35 per barrel. This ensures profitability even in challenging market conditions.

In these two areas, Exxon is producing more than it initially expected.

So in the Permian, we had guided to 600,000 kind of oil equivalent barrels. We came in at 620,000. In Guyana, we had said 380,000, we came in at 390,000, right? And you think about where we’re at in Guyana today, and we’ve got prosperity, the third boat, which is in the Payara development already up to nameplate capacity as we stand here today. And that’s because we made the decision to drill more wells to ensure that we could get that boat up to capacity as quickly as possible in our organization absolutely delivered on that. – XOM 4Q23 Earnings Call

The company is also working on completing the acquisition of Pioneer Natural Resources (PXD), a deal I discussed in this article.

Exxon expects significant synergies from the acquisition, particularly in terms of increased resource recovery and capital efficiency. By combining resources and expertise, Exxon Mobil aims to unlock additional value and drive sustainable growth in the Permian Basin.

Essentially, the deal is all about resource recovery in the Permian Basin, an area where PXD has some of the best assets in the Midland.

XOM believes that by applying its development strategy and “operational excellence” to Pioneer’s assets, it can maximize the production of oil and gas from existing reservoirs.

This is very important, as the Permian is slowly moving toward peak production growth, a development that could be very bullish for oil prices, as the shale revolution was the reason why prices were often very subdued.

The Permian is expected to produce a record high 5.974 million barrels per day in February, though that will be the smallest month-over-month growth since July, EIA data showed. – Reuters

On top of that, Exxon is now going after Chevron. Exxon recently filed for arbitration in the International Chamber of Commerce in Paris, as it believes it has a right of first refusal over the Chevron/Hess (HES) deal.

Chevron’s deal to buy Hess amounts to a circumvention of Exxon’s pre-emption rights, Chapman said. While the joint-operating agreement with Hess and other partners in Guyana is confidential, Exxon is “very, very confident” in its position, he said. – Bloomberg

While Exxon will try to buy Hess, it is likely that Chevron will terminate the deal before it comes to that.

Once that happens, it needs to be seen what Exxon will do.

For now, however, the key takeaway is that Exxon is becoming increasingly aggressive in both the Permian and Guyana, as it seems to capitalize on its ability to increase output in an industry that is increasingly focused on capital preservation.

So, what about its dividend?

Exxon has 41 years of consecutive annual dividend increases, making it one of the few Dividend Aristocrats in the industry.

After hiking its dividend by 4.4% on October 27, it now pays $0.95 per share per quarter. That’s a yield of 3.5%.

The five-year dividend CAGR is 2.6%, which is extremely low.
While the company did not cut its dividend during the pandemic, it seems to follow a strategy based on safety.

It knows that if it were to aggressively hike its dividend, it might have to cut once oil prices implode again.

However, instead of using special dividends, Exxon – like its major peers – is using buybacks to distribute cash. While that may benefit the per-share value of its business, it’s not necessarily what income-focused investors are looking for.

Especially in the energy sector, investors tend to be income-focused. I’m one of them.

Over the past three years, XOM bought back 6% of its shares.
This year, the company is expected to generate $32 billion in free cash flow. While this is highly dependent on oil prices, it indicates a free cash flow yield of 7%.

In other words, we can expect total distributions to be close to that number, potentially consisting of 50/50 dividends and buybacks.

Needless to say, that’s also dependent on future M&A and potential investments in growth.

Personally, I am not a fan of the buyback strategy and doubt we’ll see a shift to special dividends.

What I Prefer Instead Of Exxon
Buybacks make sense when a company is very cheap. This applies to a company like Cenovus (CVE), the Canadian integrated oil and gas player that has vowed to distribute all excess cash flow through buybacks in the future. I discuss CVE in this article.

CVE trades at less than 6x operating cash flow (“OCF”).

Exxon trades at a blended OCF ratio of 7.8x. Generally speaking, XOM has enjoyed a higher multiple, as it is simply a more stable business than most oil companies.

Its normalized OCF multiple is 9x, as we can see in the chart below (the blue line).

However, at current prices, I prefer a range of other companies:

Undervalued plays like Cenovus.
U.S. shale producers with a focus on special dividends and a very attractive valuation. In this segment, I like Devon Energy (DVN), which I discuss in this article.
Super-majors like EOG Resources (EOG). I often think of it as an on-shore version of Exxon. EOG uses special dividends to reward investors. I discussed EOG in this article. Especially premium drilling has allowed this company to boost shareholder returns. It now has a base dividend of 3%, a double-digit OCF yield, and a stock price that, I believe, is easily up to 30% undervalued in the current environment. The data in the chart below supports my thesis.
Image

I also prefer plays like Canadian Natural Resources, which just hit its leverage target and has pledged to return 100% of its free cash flow to shareholders.

CNQ is my largest upstream investment.

I also preferred Diamondback Energy (FANG), as it uses special dividends to distribute most of its cash to shareholders.

However, after the recent M&A announcement, the stock is not very cheap anymore, and we may see a focus on debt reduction.

Nonetheless, if FANG comes down, I will buy this one for a number of family accounts, likely also my personal dividend growth portfolio.
Over the next few years, I expect all of these stocks to beat XOM and deliver substantially more dividends – and buybacks.

However, these companies are more volatile than Exxon. Moreover, while CNQ has a somewhat similar volatility profile and a Dividend Aristocrat profile, it has CAD/USD currency risks and tax implications for some investors.

So, all things considered, I like Exxon. However, I do not like it enough to recommend it to the “average” investor looking for oil exposure.

While it certainly has benefits like consistent dividend growth, growth potential in Guyana and the Permian, and diversification through downstream operations, dividend growth is too slow, it’s not extremely cheap to warrant buybacks, and I expect the company to continue underperforming its average peers during oil price rallies.

Takeaway
While Exxon has historically been a stalwart in the energy sector, recent trends suggest it may not be the best bet for investors seeking exposure to higher oil prices.

Despite its solid fundamentals, including substantial reserves and growth projects, Exxon’s performance tends to lag behind during oil price upswings.

Moreover, the company’s cautious approach to dividend growth and reliance on buybacks may not appeal to income-focused investors.

Instead, alternatives like undervalued plays such as Cenovus or U.S. shale producers like Devon Energy offer more attractive prospects for dividend growth and capital appreciation.

While Exxon remains a viable option for some, it may not be the optimal choice for investors seeking elevated returns in the current energy environment.

However, I am giving the stock a Buy rating, as it’s still a good company that will benefit from potentially higher oil prices and measures to improve the business.

Pros & Cons
Reasons to like Exxon:

Historically stable investment in the energy sector.
Massive reserves and growth opportunities in Guyana and the Permian Basin.
Consistent dividend growth for 41 consecutive years.
Diversification through downstream operations.
Reasons to dislike Exxon:

Underperformance during oil price rallies compared to peers.
Slow dividend growth may not appeal to income-focused investors.
Reliance on buybacks instead of special dividends.
XOM is not as undervalued as some alternatives like Cenovus or Devon Energy.
I see a high likelihood of continued underperformance in the current energy environment.

By: seekingalpha / Leo Nelissen ,Mar. 11, 2024

U.S. crude oil exports dropped slightly for the week ending March 1 to 4.3 MMb/d from 4.4 MMb/d in the previous week.

This seems to continue the trend of increasing US exports, as can be seen from the 4 week moving average, (blue line in graph below). Though the topline number was about flat, it hid some significant changes.  First, Enterprise’s Houston Terminal set its monthly record in February, loading 24.6 MMbbl, topping January’s record which was 20.2 MMbbl, both of which are substantially more than 2023’s average rate of 13.7 MMbbl.

The second big change was in destination, with Europe and Asia switching places. Exports destined for Asia fell substantially last week to 5.5 MMbbl from 15.9 MMbbl the previous week. This is the lowest exports to Asia have been since early November. On the flip side, volumes to Europe were up by more than 7 MMbbl to 18 MMbbl, a number we’ve only witnessed one other time in the last several years.  With the troubles in the Red Sea choking Suez Canal volumes, this was predicted to happen, with US volumes thought to be replacing Mid East volumes that are headed east, to avoid paying the rather steep penalty of the Cape of Good Hope reroute.

By: RBN Energy / Albert Marc Passy, March 8, 2024

Enbridge has embarked on further enhancing its crude oil export capabilities at the US Gulf Coast through a combination of brownfield acquisitions and new build outs to accommodate growing output from the Permian Basin and Western Canada, senior company officials said March 6.

“Today we are announcing accretive new capital investments focused on our USGC strategy that include additional export docks and storage tanks at EIEC [Enbridge Ingleside Energy Center],” CEO Greg Ebel said on a webcast at the Enbridge Investor Day in New York. “These investments provide near-term growth in the USGC and set the stage for the future expansion through high-quality partnerships and embedded organic opportunities.”

The planned new projects include a 120,000-b/d expansion of the Gray Oak pipeline, for which an open season is currently underway, and the building of 2.5 million barrels of crude storage at EIEC, both estimated to cost $100 million, President of Liquids Pipelines Colin Gruending said on the same webcast.

The long-hail Gray Oak pipeline of nameplate capacity 1 million b/d ships light barrels from the Permian to the EIEC at the Port of Corpus Christi in Texas.

EIEC is Enbridge’s prime crude oil storage and terminal with access to a marine waterfront and hinterland pipeline connectivity to the Permian and Eagle Ford basins making it a cost-advantaged location for the storage and export of crude.

At present, Enbridge has been exporting about 1 million b/d of crude from its docks at the EIEC, Gruending said.

Enbridge sanctioned 2.5 million barrels of additional crude oil storage at EIEC, which will bring overall storage capacity to nearly 20 million barrels by 2025, the company said in a release, adding the timely addition of storage tanks at Ingleside supports higher crude throughput by ensuring customers have on-demand access to their export-ready crude supply.

New marine docks, Mainline status

Also, as part of adding new USGC export capacity, Enbridge has signed an agreement to acquire two marine docks and nearby land adjacent to EIEC from Flint Hills Resources for about $200 million with the deal expected to close in Q3, 2024, the company said.

The acquisition will facilitate Enbridge’s plans to fully integrate the waterfront between EIEC and the newly acquired docks, which will add immediate crude oil export capacity and streamline existing Ingleside operations by increasing VLCC windows on the primary facility docks, Enbridge said.

Looking ahead, the new Flint Hills docks can also be configured to export multiple products and Enbridge will retain the option to expand its existing Ingleside dock infrastructure as required, it said.

“With the acquisition, we will have more capacity to load VLCCs,” Ebel said without giving a figure on current loadings from EIEC.

These investments come in the wake of growing crude oil volumes from the Western Canadian Sedimentary Basin and the Permian, which Enbridge estimates to be 500,000 b/d and 1 million b/d respectively over the shorter term, Ebel said.

For the 3,000-mile Mainline pipeline system, Enbridge sees 2024 throughput being maintained at 3 million b/d, Gruending said. The system transports Canadian heavy and light barrels from Edmonton in Alberta to Gretna on the Canadian-US border where the volumes flow onto Enbridge’s Lakehead system that supplies crude oil to refineries in US Midwest and USGC.

“North America is now long on oil and we see a resilient demand of 2 million b/d from sole-sourced refiners on the way of the Mainline system, [besides a growing demand for exports to the USGC]” Gruending said. “Despite the start up of TMX, the Mainline will not be losing a ton of volumes. The mainline has been pretty full and the system is competitive along with the demand pull.”

On March 4, Enbridge said the Canada Energy Regulator had approved the Mainline tolling negotiated settlement.

The settlement sets tariffs for crude oil and liquids shipments that start in Western Canada and are delivered across Canada and North America, Ebel said.

On Dec. 15, 2023, Enbridge filed an application with the Canada Energy Regulator for approval of the Mainline tolling settlement that covers both the Canadian and US portions of the Mainline and sees the pipeline as a common carrier system available to all shippers on a monthly nomination basis.

The settlement term is seven and a half years through the end of 2028, with new interim tolls effective on July 1, 2023.

Under the deal the new toll is be a combination of the following: C$1.65 ($1.23)/b for the Canadian portion; $2.57/b for the US section; and $0.77/b as Line 3 Replacement surcharge.

New Louisiana gas pipeline

Separately, Enbridge and Shell Pipeline have extended their relationship through additional investment in growing Gulf of Mexico offshore plays, the former said, adding a newly formed joint venture, Oceanus Pipeline Co., to develop and construct a 60-mile, 18-inch oil pipeline and a 15-mile, 10-inch gas pipeline to serve Shell and Equinor’s offshore Sparta development.

The projects are consistent with Enbridge’s low risk business model and are backed by long-term fixed payment contracts, with an estimated cost of $200 million and expected to be in service in 2028, Enbridge said.

By: S&P Global /Ashok Dutta, March 8, 2024

Vitol’s subsidiary ViGo Bioenergy has acquired PitPoint.LNG, the Dutch joint venture between TotalEnergies and SHV Energy.

Oaklins, who acted as the exclusive M&A sell-side advisor to TotalEnergies and SHV, revealed the deal in a statement on Thursday.

The company did not provide further details regarding the acquisition.

With this deal, Germany’s ViGo expands its international station network for alternative fuels and strengthens its European LNG and bio-LNG position.

According to its website, PitPoint.LNG currently operates 12 heavy-duty LNG stations in the Netherlands, Belgium, and Germany, and one bunkering station for inland waterway vessels in Cologne, Germany.

On the other hand, ViGo recently launched a bio-LNG station for vehicles in Germany’s Braunschweig and now has 28 stations in operation with more planned.

Back in 2021, energy trader Vitol bought Berlin-based LNG firm Liquind, now renamed ViGo Bioenergy.

Germany hosts the largest number of LNG fueling stations for trucks.

Recent data by Gmobility, previously known as NGVA Europe, showed that Germany had 185 LNG filing stations, while Italy had 146 such stations.

Last year, European network of LNG fueling stations for vehicles reached 700 stations due to a growing demand for LNG and bio-LNG in the transport sector.

By: LNG Prime Staff, March 8, 2024

Bloom Energy Inc. has partnered with Shell Plc. (Shell) to explore decarbonization solutions, leveraging Bloom’s innovative hydrogen electrolyzer technology.

Together, Bloom and Shell aim to develop replicable, large-scale solid oxide electrolyzer (SOEC) systems capable of producing hydrogen for potential utilization across Shell’s assets.

KR Sridhar, founder, chairman, and CEO of Bloom Energy, expressed optimism about the transformative potential of this technology in decarbonizing hard-to-abate industry sectors. He emphasized Bloom’s position as a world leader in solid oxide electrolyzer technology, poised to provide customers with American-made energy technology to reduce carbon footprints while sustaining economic growth.

Bloom’s SOEC technology enables the production of clean hydrogen at scale, offering a sustainable alternative to fossil fuel-powered “grey” hydrogen production methods. By utilizing water electrolysis and renewable energy sources, Bloom’s technology produces clean or “green” hydrogen, effectively eliminating greenhouse gas emissions.

The demand for Bloom Electrolyzer®, manufactured in California and Delaware, has been steadily increasing due to growing interest in the low-carbon economy. Independent analysis indicates that Bloom now boasts the world’s largest operating electrolyzer manufacturing capacity among all electrolysis technologies, surpassing its closest competitor by double. A highly successful demonstration in May 2023 showcased the world’s largest solid oxide electrolyzer, with a capacity of 4 Megawatts, producing 2.4 metric tons of hydrogen per day at NASA Ames research facility in Mountain View, California. This high-temperature, high-efficiency unit outperformed commercially demonstrated lower temperature electrolyzers such as proton electrolyte membrane (PEM) or alkaline electrolyzers in terms of hydrogen production per megawatt (MW).

By: Solar Quarter / Kavitha , March 8, 2024

With expectations for liquefied natural gas (LNG) demand to surge by 50% by 2030, the Gulf oil and gas giants are exploring opportunities in the US.

Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) are in negotiations to invest in US LNG projects, reported Reuters, citing sources.

With expectations that LNG demand will surge by 50% by 2030, the Gulf oil giants are exploring opportunities in the US.

Recently, the US become the leading LNG exporter globally, especially as it delivers record volumes to Europe.

Aramco is in talks regarding phase two of Sempra Infrastructure’s Port Arthur LNG project in Texas, the sources said.

This phase is an expansion of the operational first phase.

Concurrently, ADNOC is in discussions with US LNG company NextDecade concerning an offtake from a proposed fourth processing unit at the $18bn Rio Grande LNG export facility.

Both Aramco and ADNOC refrained from commenting on these discussions.

NextDecade stated it does not comment on market speculation, while Sempra Infrastructure, a subsidiary of Sempra, stated it does not comment on commercial considerations pertaining to projects in development.

The US is on track to nearly double its LNG capacity within the next four years.

However, financial challenges have impeded several US LNG project developers from advancing their export terminals.

This is due to increased investor scrutiny and regulatory pressures on banks to prioritise environmental, social and governance considerations.

In response to environmental concerns, US President Joe Biden halted approvals for new LNG export projects in January.

Details regarding whether the talks with Saudi Aramco and ADNOC involve equity stakes or sale and purchase agreements remain unclear.

One source mentioned that Aramco might acquire some or all of the output from one of the two liquefaction units planned for Port Arthur’s second phase, each with a production capacity of up to 13.5 million tonnes per annum.

Aramco is actively seeking to establish its presence in the global LNG market, while ADNOC is already an established player.

Both are in competition with Qatar, a dominant player in the global LNG export market.

By Offshore Technology / GreenOak , March 7, 2024

Trafigura Group Pte Ltd and Greenergy, a UK-based supplier of road fuels and a major biodiesel producer, today announce that Trafigura has agreed to acquire Greenergy’s European business from Brookfield Asset Management and its listed affiliate Brookfield Business Partners for an undisclosed sum. The acquisition is subject to customary closing conditions and regulatory approvals.

Initially founded in 1992 to supply diesel with lower emissions, Greenergy is today one of Europe’s largest suppliers of biofuels with manufacturing plants in the UK and the Netherlands and a leading distributor of road fuels in the UK.

The acquisition of Greenergy presents a unique opportunity for Trafigura to strengthen its fuel supply operations in Europe and to add the physical production and distribution of renewable fuels to its growing biofuels business. Post acquisition, the company will continue to be led by its current management team.

The combination of Trafigura’s and Greenergy’s commercial and market expertise will add value to the existing operations, and enable the company to explore opportunities for expansion into new markets and products.

In addition, Trafigura’s financial strength will provide a robust platform for growth, helping to drive Greenergy’s strategic initiatives and its decarbonisation plan.

Ben Luckock, Global Head of Oil at Trafigura, said: “As Europe transitions to a lower carbon future and the refining industry adapts to changing market dynamics, companies like Greenergy become increasingly important. This acquisition represents a major expansion of our existing biofuels and fuel supply capabilities, adding Greenergy’s production and distribution expertise and supporting customers’ transition to cleaner, more sustainable fuel options.”

Christian Flach, Chief Executive of Greenergy, said: “Trafigura brings additional understanding of global supply chains and energy markets and a track record of investing in renewables. This will further enhance our offer to customers through the energy transition and beyond.”

By: Trafigura / Ashitha Shivaprasad , March 5, 2024