Released August 18, 2020 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Bernadette Johnson, vice president of strategic analytics at Enverus (Austin, Texas), has good news for oil and gas producers: Absent a second wave of COVID-19, rising demand will lead to higher prices for the next few years.
Johnson was speaking Monday at the 25th The Oil & Gas Conference, organized by EnerCom Incorporated (Denver, Colorado).
She presented conference attendees with Enverus' West Texas Intermediate (WTI) price forecast, which expects WTI will rise steadily to about $50 per barrel by the end of next year, plateau for several quarters and then surge to roughly $60 per barrel in early 2024.
Click on the image at right to see Enverus' crude-oil price forecast.
One reason for this bullish price outlook is the dramatic fall-off in production from Venezuela and Libya. Production discipline by OPEC+ is another reason. A third is slumping Iranian exports, which have been cut back sharply under the Trump administration's "maximum pressure" campaign. A fourth is gradually recovering demand around the world.
"Crude oil prices have staged an impressive recovery" since cratering in April, she said. The dramatic reduction in demand during the March-April period left the world with about 8 million barrels per day (BBL/d) in excess production, leading to lower prices. But Johnson said Enverus sees demand exceeding production by 3 million to 5 million BBL/d for the next six quarters, leading to drawdowns of crude oil inventories and upward pressure on prices.
But a resurgence of COVID-19 "could quickly flip an under-supplied market to an over-supplied market," she cautioned. "We're early on in the recovery. If this was a baseball game, we're about in the third inning."
Another critical factor affecting oil prices is how the markets react when increased supply from OPEC+ and the U.S. starts trickling back, she added.
The positive outlook for oil prices extends to gas prices. Next year prices will rise by as much as 77% from the current price of about $2.20 per million British thermal units (MMBtus) to about $3.90 per MMBtus at Henry Hub, Louisiana, Johnson forecast. That's because U.S. natural gas production dropped by about 7 billion cubic feet per day (Bcf/d) during the first half of 2020, and higher prices will be needed to stimulate additional production necessary to meet winter demand.
She said she expected gas prices to average $3.00 per MMBtu at Henry Hub in 2022-2024. She noted that Enverus' forecast was higher than current NYMEX strip prices, and that oil prices are expected to exert a significant influence on gas prices. She acknowledged, "If we get oil price forecast wrong, the gas price forecast will be wrong."
Click on the image at right to see Enverus' prediction for gas prices from 2020-2024.
Higher crude and gas prices would be welcome news for producers. One producer speaking at the EnerCom event, Comstock Resources Incorporated (NYSE:CRK) (Frisco, Texas), is a gas producer in the Haynesville Shale. Following last summer's acquisition of driller Covey Park Energy LLC, Comstock was able to buck the industry's trend and report increased revenue for the second quarter, though mark-to-market adjustments for derivative financial instruments turned a small operating profit into a net loss.
But the future looks bright for Comstock, CEO Jay Allison told the EnerCom attendees, noting that Dallas Cowboys football team owner Jerry Jones has invested about $1.1 billion for a 60% stake in the company. "He's as enthusiastic about natural gas and our company as he has ever been," Allison said. For more on Jones' investment in Comstock, see January 22, 2020 article - Cowboys Owner Jerry Jones Doubles Down on Haynesville Shale, Drawn by Production Records, LNG Exports.
Allison said Comstock is reporting 69% operating margins, far more than peer gas producers, and a 55% internal rate of return, better than producers in the Appalachian region.
Comstock has much lower midstream processing costs than its peers, and its position in the Haynesville allows it to supply burgeoning demand from Gulf Coast industrial firms and liquefied natural gas (LNG) export market, though the latter has cooled this year. The company expects to generate about $100 million in free cash flow this year and double than in 2021, he projected. Comstock was one of the few oil and gas companies that was able to issue common stock this year.
"On the demand side, LNG has been a game-changer for us." Alison said on Monday. "We have the cheapest gas in the world and we're sitting right on top of that." He said he expected LNG sales to pick up in the second half of 2020 and during 2021.
Allison noted that Comstock has been able to sharply lower its per-stage frac costs, from about $80,000 to about $26,000, which has helped contribute to its low-cost structure.
"Although Wall Street is still skeptical on exploration & production companies, because Comstock is a low-cost, high-margin player, we were able to issue debt and equity and a time when others could not," he told the attendees, which included investment analysts, private equity players, hedge fund representatives and investment and commercial bankers.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Johnson was speaking Monday at the 25th The Oil & Gas Conference, organized by EnerCom Incorporated (Denver, Colorado).
She presented conference attendees with Enverus' West Texas Intermediate (WTI) price forecast, which expects WTI will rise steadily to about $50 per barrel by the end of next year, plateau for several quarters and then surge to roughly $60 per barrel in early 2024.
Click on the image at right to see Enverus' crude-oil price forecast.One reason for this bullish price outlook is the dramatic fall-off in production from Venezuela and Libya. Production discipline by OPEC+ is another reason. A third is slumping Iranian exports, which have been cut back sharply under the Trump administration's "maximum pressure" campaign. A fourth is gradually recovering demand around the world.
"Crude oil prices have staged an impressive recovery" since cratering in April, she said. The dramatic reduction in demand during the March-April period left the world with about 8 million barrels per day (BBL/d) in excess production, leading to lower prices. But Johnson said Enverus sees demand exceeding production by 3 million to 5 million BBL/d for the next six quarters, leading to drawdowns of crude oil inventories and upward pressure on prices.
But a resurgence of COVID-19 "could quickly flip an under-supplied market to an over-supplied market," she cautioned. "We're early on in the recovery. If this was a baseball game, we're about in the third inning."
Another critical factor affecting oil prices is how the markets react when increased supply from OPEC+ and the U.S. starts trickling back, she added.
The positive outlook for oil prices extends to gas prices. Next year prices will rise by as much as 77% from the current price of about $2.20 per million British thermal units (MMBtus) to about $3.90 per MMBtus at Henry Hub, Louisiana, Johnson forecast. That's because U.S. natural gas production dropped by about 7 billion cubic feet per day (Bcf/d) during the first half of 2020, and higher prices will be needed to stimulate additional production necessary to meet winter demand.
She said she expected gas prices to average $3.00 per MMBtu at Henry Hub in 2022-2024. She noted that Enverus' forecast was higher than current NYMEX strip prices, and that oil prices are expected to exert a significant influence on gas prices. She acknowledged, "If we get oil price forecast wrong, the gas price forecast will be wrong."
Click on the image at right to see Enverus' prediction for gas prices from 2020-2024.Higher crude and gas prices would be welcome news for producers. One producer speaking at the EnerCom event, Comstock Resources Incorporated (NYSE:CRK) (Frisco, Texas), is a gas producer in the Haynesville Shale. Following last summer's acquisition of driller Covey Park Energy LLC, Comstock was able to buck the industry's trend and report increased revenue for the second quarter, though mark-to-market adjustments for derivative financial instruments turned a small operating profit into a net loss.
But the future looks bright for Comstock, CEO Jay Allison told the EnerCom attendees, noting that Dallas Cowboys football team owner Jerry Jones has invested about $1.1 billion for a 60% stake in the company. "He's as enthusiastic about natural gas and our company as he has ever been," Allison said. For more on Jones' investment in Comstock, see January 22, 2020 article - Cowboys Owner Jerry Jones Doubles Down on Haynesville Shale, Drawn by Production Records, LNG Exports.
Allison said Comstock is reporting 69% operating margins, far more than peer gas producers, and a 55% internal rate of return, better than producers in the Appalachian region.
Comstock has much lower midstream processing costs than its peers, and its position in the Haynesville allows it to supply burgeoning demand from Gulf Coast industrial firms and liquefied natural gas (LNG) export market, though the latter has cooled this year. The company expects to generate about $100 million in free cash flow this year and double than in 2021, he projected. Comstock was one of the few oil and gas companies that was able to issue common stock this year.
"On the demand side, LNG has been a game-changer for us." Alison said on Monday. "We have the cheapest gas in the world and we're sitting right on top of that." He said he expected LNG sales to pick up in the second half of 2020 and during 2021.
Allison noted that Comstock has been able to sharply lower its per-stage frac costs, from about $80,000 to about $26,000, which has helped contribute to its low-cost structure.
"Although Wall Street is still skeptical on exploration & production companies, because Comstock is a low-cost, high-margin player, we were able to issue debt and equity and a time when others could not," he told the attendees, which included investment analysts, private equity players, hedge fund representatives and investment and commercial bankers.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
