The U.S. shale-gas plays are “criminally destructive,” says Bob Sinnott, president and chief executive of private-equity firm Kayne Anderson Capital Advisors. The Los Angeles-based firm has some $10 billion under management in energy infrastructure as well as oil and gas.
“I believe the (gas) shale plays are criminally destructive,” Sinnott told Oil Council meeting attendees in New York recently. “They are throwing so much gas into the market that gas prices are now $3.65. (A fellow presenter’s slides) show the rate of return for the shale plays assumes $6 gas.
“It isn’t $6. It’s $3.65, and no one is making a dry-gas profit at that.”
An E&P operator was in his office recently. “He said their F&D cost for their next shale well was 98 cents, but their full-cycle economics was $3.80. So, I said, ‘At $3.80, you’re getting $3.65. Are you making any money?’ And he says, ‘I never thought of it that way.’”
That is the mindset today. Instead, “we should be curtailing. We should be limiting gas supply. We should be getting $6, $7. Look at oil: Oil has an economic value. Gas should have an economic value.”
Among the panelists, he said he is probably the oldest. “Back when Ken (Hersh with private-equity firm Natural Gas Partners and fellow presenter) and I started in this business, everyone curtailed when we were in these types of worlds. No one curtails much anymore.”
Some producers, such as Chesapeake Energy Corp., say they’re laying down rigs or that they will next year. “We should be laying down rigs (now). The problem is that the technology John (Moon with Morgan Stanley Private Equity and a fellow presenter) is talking about is coming along and every time (operators are) drilling a well, they’re lowering the cost a little more, so they want to drill some more.
“Or you’ve got international oil companies out here drilling in order to learn how to import that technology to their countries and to other places in the world.”
Meanwhile, “they’re all destroying capital in that part of the business.”
Kayne Anderson does like the economics of oil-shale plays, in which it is invested in California, he says. “But California is a much different world…It’s a very difficult operating area. We have one project that, if we can get the next well down at $2 million less than our first well, then we have 150 drillsites at $8 million a well.
“So I have $1 billion to spend in California, if it works, but I don’t know if I can get it done, can get it down another $2 million.”
–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, OilandGasInvestor.com Today, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at firstname.lastname@example.org.
Q&A: EnCap’s Thielemann: Private Equity ‘Survivors’ Poised to Thrive
2023-03-21 - EnCap private equity veteran Brad Thielemann discusses the role of private equity in traditional oil and gas investing — including the need to ramp up investments to meet demand — as well as its trajectory for financing the transitions ahead.
Hi-Crush to Deploy Mobile Frac Sand Unit with Pioneer Natural Resources
2023-03-21 - Hi-Crush said it is deploying a second mobile damp sand mining unit with Pioneer Natural Resources following successful operations with the company in September 2022.
Huge Phillips 66 Biofuels Project Will Test the Industry’s Green Promises
2023-03-21 - Phillips 66 says the renewable diesel plant, Rodeo Renewed, will significantly cut certain regulated pollutants and lead to large cuts in greenhouse gasses.
AI, ML Improve Simulations, But Still Vulnerable to ‘Artificial Stupidity’
2023-03-21 - Synthetic data generation can flesh out models to help machine learning and artificial intelligence visualize trends and create better simulations.
BP Delivers Profits of $27.7 Billion in 2022
2023-02-07 - London-based BP Plc reported an underlying replacement cost profit of $27.7 billion in 2022 while reducing net debt to $21.4 billion and achieving an average return on average capital employed of 30.5%. In 2023, the company will remain focused on delivery of its financial frame underpinned by a $40/bbl balance point.