Executive Summary: Rigs: The total US rig count increased by 6 rigs W-o-W for the week ending January 28. Infrastructure: Diamondback Energy (FANG) will merge with private operator Endeavor Energy Resources in a $26B cash-and-stock deal, consolidating two of the largest producers in the Midland Basin. Storage: East Daley expects a build of 6.510 MMbbl in commercial and Strategic Petroleum Reserve (SPR) inventories for the week ending February 9.
Rigs:
The total US rig count increased by 6 rigs W-o-W for the week ending January 28. The rig count is now at 610, up from 604. The gains in US rigs mostly took place in gas basins, while activity in liquid-driven basins was relatively quiet.
Liquid-driven basins added 2 rigs W-o-W, up to a total count of 493 from 491. Rigs were added by operators Blake Production Co. in the Anadarko Basin and Millennium Exploration Co. in the Eagle Ford, each adding a rig. The Permian saw offsetting moves in the Delaware and Midland basins, resulting in no change W-o-W at 305 total rigs.
Infrastructure:
Diamondback Energy (FANG) will merge with private operator Endeavor Energy Resources in a $26B cash-and-stock deal, consolidating two of the largest producers in the Midland Basin.
FANG and Endeavor announced the agreement Monday (February 12). FANG will pay $8B in cash and 117.3MM shares for Endeavor. The combination will create one of the largest Permian producers with nearly 840,000 acres and a combined ~470 Mb/d of crude oil production, 90% based in the Midland.
Endeavor has operated 13-15 rigs consistently over the past few years and 12 rigs since Decmeber ’23. The private operator has rapidly grown its oil production at a 31% CAGR over the past five years. Diamondback is guiding to 1-2% production growth in 2025 for the combined entity, suggesting a dramatic slowing in Endeavor’s growth rate.
East Daley Analytics Consulting Service can build custom producer models for clients interested in learning more about the impacts of Permian M&A activity. We estimate Endeavor would need 9 rigs to hold its production flat, or a decline of 3 rigs from recent activity. Based on Endeavor’s growth trajectory as a stand-alone company, EDA estimates the post-merger slowdown could result in ~75 Mb/d less oil production by 2025.
As showcased in East Daley’s Dirty Little Secrets annual forecast, upstream consolidation between public and private operators has been a significant factor behind falling rig counts in the Permian Basin. Permian producers dropped 70 rigs over the course of 2023, a decline of 24%.
Storage:
East Daley expects a build of 6.510 MMbbl in commercial and Strategic Petroleum Reserve (SPR) inventories for the week ending February 9. We expect total US stocks, including the SPR, will close at 791.959 MMbbl.
The US natural gas pipeline sample, a proxy for change in oil production, increased by 1.1% in liquids-focused basins. The Williston Basin stayed flat W-o-W after last week’s 22% increase, gaining back production lost during mid-January’s winter freeze. The Permian Basin saw an increase of 1.9% W-o-W. The Williston Basin has excellent pipeline sample coverage at ~100%, whereas the Permian Basin coverage is lower at ~40%. We expect US crude production to return to pre-January winter freeze levels at 13.3 MMb/d.
According to US bill of lading data, US crude imports decreased by ~307 Mb/d W-o-W to 6.6 MMb/d. More than 60% of the supply originated from Canadian pipelines into the US, with the remainder largely coming from ships carrying crude from Mexico, Brazil and Argentina.
As of February 11, there was ~1,757 Mb/d of refining capacity offline, including downtime for planned and unplanned maintenance. EDA expects gross crude inputs into refineries to remain flat W-o-W, coming in at 14.8 MMb/d.
Vessel traffic monitored by EDA along the Gulf Coast decreased W-o-W. There were 26 vessels loaded for the week ending February 9th and 21 the prior week. EDA expects US exports to be 4.1 MMb/d.
The SPR awarded contracts for 2.1 MMbbl to be delivered in February 2024. The SPR has 358.017 MMbbl in storage as of February 6, 2024.
Regulatory and Tariffs
Presented by ARBO
Tariffs:
Tallgrass Pony Express Pipeline, LLC Pony Express, operated by Tallgrass, together with Bridger Pipeline, LLC announced a new binding joint tariff open season for shipper commitments for crude oil transportation from Bridger’s Guernsey hub and Pony Express’ Guernsey and Sterling origins in exchange for incentive tariff rates. This open season will run for 30 days, commencing on January 24, 2024. (FERC No 12.0.0 IS24- 179, filed January 30, 2023)
The above information is provided by ARBO’s Oil Pipeline Tariff Monitor. For more information on regulatory proceedings or tariff rates, please contact please contact Corey Brill via email at corey@goarbo.com or phone at 202-505-5296. https://www.goarbo.com/
