Flood -- October 9, 2019

Re-posting. This is an incredibly good article on so many levels.

Flood: Big Oil's renewable shift seen flooding investors with cash -- Bloomberg. Early this week COP made a huge announcement along this same line. COP is linked at the sidebar at the right. The story has a data point that I brought up years ago and no one else has mentioned it until now. [Obviously it's been mentioned before/elsewhere but I've not been able to find other examples.]

So, the story.

The lede:

Shareholders of global oil giants will be “drowned” in cash from dividends and buybacks for the next 20 years as the firms shift their capital structure to finance renewable projects, according to Rystad Energy.

Majors such as Exxon Mobil Corp. and Chevron Corp. have traditionally had to hoard cash as they looked to their own balance sheets to fund billion-dollar megaprojects, founder Jarand Rystad said at his firm’s annual summit in Singapore.

That will change as they gravitate to wind and solar projects, which tap debt markets backed by project financing for as much as 95% of their cost, he said.

The shift will create huge amounts of surplus cash that majors can return to investors as they increasingly tap pension funds and other lenders for lower-risk renewable projects, said Rystad. It underscores the massive changes oil and gas giants will need to undertake as they transition to wind and solar projects, the fastest-growing sources of energy.

Again, this is from Bloomberg, not a source that is usually inappropriately exuberant about Big Oil. LOL. 

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, travel, career, or relationship decisions based on what you read here or think you may have read here.

What else in the story that caught my eye(s):

• shareholders will be drowned in capital paid back by energy majors in the next 20 years,” said Rystad, whose Oslo-based consultancy gained prominence for being among the first to identify the market-changing potential of U.S. shale
• major oil companies are poised to do a record number of clean-energy deals this year, with Royal Dutch Shell leading the pack ...
• investment in upstream oil and gas projects tends to be high-return but risky as the results aren’t always apparent at the outset. In contrast, renewable projects follow a model more closely aligned with utilities, in which power-purchase agreements with grids or end-users offer relatively low but guaranteed returns sought by banks and pension funds.
• while owning a solar farm won’t provide the kind of returns attractive to Big Oil’s investors, these companies can tap their engineering and operational expertise to develop projects and sell them when they’re complete or de-risked ...
• Clearly Chevron and Exxon... in a race to be the first to produce 1 million boepd, and then 1 million bopd from the Permian ...
• a middle ground between the two can be found in the shale industry ... Because shale development resembles manufacturing, with almost no dry holes encountered, and because companies can hedge their commodity price risk, its capital structure is about 30% to 50% equity, with the rest coming from debt, 
• “It’s natural for Big Oil companies to start to invest much more in shale, change their capital structure gradually and then go further into renewables,

Okay, some comments with focus on the Bakken:

• manufacturing: it was a local Willistonite that first coined the phrase, "... manufacturing stage in the Bakken..." -- said perhaps six years ago; now an industry standard concept
• predictable: 
• "no dry holes" -- I said that from the very beginning about the Bakken -- the Bakken is simply unique in this regard -- something oil companies had not experienced before -- knowing that they will strike oil when they drill a Bakken well
• not only are there "no dry holes," operators can predict with near 100% accuracy the potential of a new well based on "offset" wells; provides innumerable benefits
• flexible
• modular: operators can acquire neighboring acreage easily; operators can easily sell non-core assets
• small capital costs (relative to off-shore projects)
• scalable: here's a word I've not yet seen in the discussion regarding the Bakken (again, I'm using the first definition of the "Bakken" -- but unlike huge offshore projects that take years of planning; huge outlays; etc., the "Bakken" is 100% scalable. I'm not talking about production, I'm talking about drilling/completing new wells
• timeliness, from time to concept to spud to production
• offshore: measured in years
• Permian: measured in months
• the geographic Bakken: measured in weeks
• new paradigm
• conventional oil: boom and bust
• shale: manufacturing ups and downs