June 8, 2022 - On June 7th, the LSTA hosted its Semi-Annual Oil and Gas Industry June 2022 Update with Haynes and Boone partners, Deborah Low, Laura Martone, Jeff Nichols, and Gil Porter. Although crude oil prices are at the highest level in a long time, the market still seems to be in state of transition. Notably, lending activity is picking up in the oil and gas sector, and upstream lending in 1Q22 was more than double than it was in 1Q21. Institutional investors, who left because of ESG or profitability concerns, seem to be returning to the industry as lenders. There is increased demand for the sector, and the general sentiment is that even if the US enters a recession the oil and gas sector will remain strong.
Federal oil and gas leasing is to resume this month with reduced acreage available and an increased royalty rate. Although twenty-five percent of oil and gas production comes from federal lands, no changes are expected at present to overall levels of production or prices.
There is once again strong demand for long term LNG offtake from Asia, and the Ukraine war has created major additional demand for LNG from Europe. It is estimated that 80 million metric tons per year of LNG will be needed in Europe to replace Russian gas, which actually represents the total volume of US LNG exports per year — and most of US LNG is already under contract. EU terminals are not yet able to handle the additional capacity that is required, and the EU pipeline network that runs north to south for offloading in the Mediterranean is underdeveloped so this presents a challenge for the EU. The EU is further challenged by its own 2040 hydrocarbon deadlines which conflict with LNG long-term contracts.
On the ESG front, there are several notable trends detected by the Haynes and Boone and EnerCom Oil and Gas ESG Tracker. First, there is tremendous interest in ESG compliant financial products from lenders. Second, since the spring of 2021, there has been broad adoption of ESG policies and implementation of comprehensive ESG programs, and there is greater investor confidence in companies with disclosed ESG Policies and goals. Companies are disclosing more quantitative metrics and demonstrating progress toward implementing ESG goals. Third, the number of companies with goals of having “net zero” carbon emissions has more than tripled since March 2021 but still represents a minority of companies.
Click here for the slides and replay.