Did we jump the gun on our energy transition? Maybe… at least, that’s the assertion made by Saudi Aramco President & CEO Amin H. Nasser at this year’s 2022 Schlumberger Digital Forum held in Luzern, Switzerland. For a little bit of context, Aramco is the Arabia American Oil Company, known as Saudi Aramco… and they produce more oil than any other country and manage robust reserves in Saudi Arabia, the world’s largest crude oil exporter.
The short and sweet of what Nasser had to say about our current energy situation is this: we missed the mark. Now, we take a hard look at our situation… and admit to ourselves that we need oil, badly. To paraphrase… he chided our current energy crisis, asserting that the pandemic exposed our flawed past thinking, and that our predicament isn’t because of current conflicts, but rather a star-eyed, somewhat willfully ignorant hope and vision that our energy transition from dirty to clean fuels would be smooth, quick, and universally welcomed.
This, he asserts, caused divestment from oil far too haphazardly… suggesting that maybe we cut our noses off to spite our faces because we were eyeballing the green grass of renewables instead of watering our fossil fuels lawn. And now that we’ve divested and ramped down around the space, demand post-pandemic is through the roof… and here we are. He also piddled on the fires of what he sees as a hasty dismantling of oil and coal powered plants, failures to diversify energy supplies, the opposition of LNG receiving terminals, and the rejection of nuclear.
Whether one agrees with his stance or not, his words have weight, and he has his finger on the pulse of oil… and he’s kicking holes in the utopian green energy transition narrative. What’s our stance? Nothing is black or white. There’s no doubt that, ultimately, we have no choice but to transition to renewables… but, right this minute, the people need energy. All other factors aside, that’s the situation at hand, and that means opportunities.
The Global Landscape
As of last year, the U.S. was a net importer of crude oil and exporter of refined petroleum products. Saudi Arabia and Russia were the two largest oil exporters globally, and only one European country was among the top 15 oil producers (excluding Russia), which was Norway (which adds up when you look at the level of dependence of the EU on oil and gas from Russia). With oil demand above pre-pandemic levels, and rising, sanctions and supply issues are only making a tight situation tighter.
To reduce the pressure, the world is ramping up oil supply by releasing strategic petroleum reserves (SPRs), increasing production, and western nations are pressing OPEC to increase output (this to no avail, as planned production hikes will remain unchanged). With oil demand expected to continue its ascent through 2023, it’ll take all our ingenuity and grit to carve a path through the crisis.
For some companies, the way through is back… as we see them turning to the past, eyeing what was once thought fruitless, and finding something beautiful. This is because we’re seeing a possible renewal of interest from private equity and shale drillers expressed through a turning in the tide of mergers and acquisitions. What’s the golden goose here? Mature wells… to be more specific, mature well investment for refracing (returning to older shale-oil and shale-gas wells) to ensure increasing value to shareholders.
Companies are eyeing these already-built infrastructure and seeing a chance to make profits without dishing out chunks of funds that would be needed if these same investments were to be made in building out new wells… and it makes sense. While these assets wouldn’t normally be a first choice, private equity and shale drillers with an eye toward value rather than growth are finding them awfully attractive right now.
Deals To Watch
Today, for IPOs in the space, we’ll be looking at something old and something new with Excelerate Energy and Atlas Sand. Excelerate Energy (EE) made its IPO debut in April of this year, raising $384 million.The company provides global integrated services along the LNG value chain, offering a full range of flexible regasification services from FSRU to infrastructure development and LNG supply. Headquartered in Woodlands, Texas and founded in 2003 by George B. Kaiser, Excelerate has grown into something truly massive, with offices in Abu Dhabi, Antwerp, Boston, Buenos Aires, Chattogram, Dhaka, Doha, Dubai, Manila, Rio de Janeiro, Singapore, and Washington, DC.
While Excelerate struggled just a bit since their IPO date, it looks like the sun may be peeking over the clouds for the company, which has recently turned its focus toward selling LNG to customers and going downstream in its Brazilian segment. We’ve done well here in the IPO Edge portfolio. The company recently announced the joint signing of a term sheet for the deployment of a floating storage and regasification unit for providing Germany with flexible and secure LNG regasification capacity. This in partnership with French multinational utility company, ENGIE. It could be that the winds are changing direction for this stock.
Atlas Sand mines refines and transports the sand that shale drillers need to help break apart rocks to release hydrocarbons, known as hydraulic fracturing (fracking). Founded in 2017 and chaired by billionaire entrepreneur Bud Brigham, the company was rocking and rolling before the pandemic. But… much like their peers, they took a hit. But that’s over now, in a big way. As the energy industry hammers the gas pedal on production, their luck seems to be turning around and the company is ready to make a go of it with an initial public offering.
Goldman Sachs will lead preparations for the Austin, Texas-based company’s listing, which may see them valued at up to $3 billion. When the company was formed, they proudly set out to ensure oil and gas industry access to the best frac sand services in West Texas, and now that it’s looking like that black gold is back in fashion, Atlas Sand could ride the changing supply chain headwinds to the pot at the end of the rainbow. A date and share prices have yet to be announced.
It’s looking like we’re in a time when old things are made new, and backwards is forward… at least, for oil. While there’s no doubt our future is green, and that’s important, maybe we were a bit too gung-ho about leaving oil behind… it looks like, at least for a while, the two will need to work together to meet the world’s energy needs. Which of these companies has what it takes to land on my Buy List? Stay tuned and come back next week, we’re always watching so you can do more important things.