Saudi Aramco pitches natural gas to China
Saudi Aramco is eager to sell natural gas to China in order to help its biggest oil customer make the transition to cleaner fuels.
Speaking at the China Development Forum, Chief Executive Officer Amin Nasser says the Saudis, who have fought to remain amongst China’s largest crude suppliers, are looking at options to develop and supply energy sources such as hydrogen and new kinds of chemicals to broaden their relationship with China, according to a Bloomberg report. Saudi Aramco is the world’s largest oil exporter, while China is the world’s largest buyer of oil.
In September, China’s leadership pledged to turn the country carbon neutral by 2060. Though little detail was offered as to how this would be achieved, fulfilling that pledge would mark a major shift for the one of the world’s biggest users of coal and oil. Most analysts and many oil majors predict that crude use will peak long before China’s target date, the report adds.
“We can also supply bridge fuels that will help meet China’s growing need for clean energy, as we expand into international gas and LNG,” Nasser says. “There are opportunities to collaborate in the development and use of clean future fuels such as hydrogen and other chemicals-type clean fuels.”
He adds that the technology to transform crude oil directly into chemicals is at “an advanced stage,” pointing out that Aramco is working with Tsinghua University in Beijing on a pilot project for the catalytic transformation of oil to chemicals.
Saudi Aramco’s ambitions to become an international player in liquified natural gas make take longer to realise, with the company shifting its investment focus to the long-term, Nasser has previously said, during comments made during a conference last month.
Aramco achieved a record single-day natural gas production of 10.7 bscfd on August 6, from both conventional and unconventional fields. Its Master Gas System has been expanded to include offshore fields, and Aramco now had the capacity to produce up to 2 billion standard cubic feet per day (scfd).
Nasser adds that the company has postponed plans for a LNG export project in the United States, while it has also scaled back plans to build a crude-to-chemicals complex in the Kingdom.
The company has joint venture refineries in China, as well as elsewhere in Asia and the US. It is now looking to invest in similar downstream projects that are already under development so as to be able to meet its goal of nearly doubling its refining capacity to as much as 10 million barrels a day, within this decade, the report concludes.
Total hydrocarbon production for the first nine months was 12.4 million barrels per day of oil equivalent, of which 9.2 million was crude oil.
Callon Petroleum Company buys Primexx for $788 million
Callon Petroleum Company has enhanced its profile in the Delaware Basin after buying Primexx for $788 million.
Primexx is a private oil and gas operator in the basin with a contiguous footprint of 35,000 net acres in Reeves County and second quarter 2021 net production of approximately 18,000 barrels of oil equivalent per day. The transaction, which involves $440 million in cash and 9.19 million shares of CPE stock issued to the seller, aims to close in Q4.
With approximately 300 identified core net locations, around two-thirds of which are two-mile laterals, the acquired assets will support Callon's continued shift to larger, more capital efficient development projects in the area while increasing the oil cut of Callon's Delaware business and improving corporate cash margins. While Callon delivered production of 89 Mboe/d in Q2, it recorded a net loss of $11.7 million.
Callon President and Chief Executive Officer Joe Gatto said the transaction checks every operational and financial box on the list of compelling attributes of consolidation.
"The asset base adds substantial current oil production and a top-tier inventory to our Delaware portfolio, and fits squarely into our model of scaled, co-development of a multi-zone resource base," he said. "Our integrated, future development plans will benefit greatly from the combined Delaware scale and we expect to generate approximately 30% more adjusted free cash flow from the third quarter of 2021 through year-end 2023 under our conservative planning price assumptions."
He added the third quarter is off "to a tremendous start" with July production volumes well ahead of second quarter average and commodity price realisations are projected to benefit from the reduction in overall hedged production.
Under the transaction, Callon will:
- Capture the benefits of a larger Delaware operation
The acquisition will increase Callon's Delaware Basin position to over 110,000 net acres. Primexx's assets will immediately compete for capital within the Callon portfolio and increase Callon's capital allocation to the Delaware Basin. In addition, numerous opportunities for cost and capital efficiency gains, which Callon has proven to achieve in past transactions, create upside to current forecasted performance.
- Drive substantial FCF increases
The acquired asset base with substantial current production will immediately contribute to both near-term adjusted free cash flow1 and total cumulative adjusted free cash flow of almost $1.2 billion through 2023 at current strip prices. This forecasted free cash flow profile is the product of a reinvestment rate of less than 60% with an associated compounded annual production growth profile that remains under 5%. Importantly, the combined transactions are forecast to be accretive to adjusted free cash flow per share in 2022 and 2023 at both planning prices of $55 - $60/Bbl for oil and current NYMEX strip pricing for oil.
- Accelerate deleveraging goals
The transactions will position Callon to accelerate its debt reduction goals, reducing leverage to less than 2x net debt to adjusted EBITDA by year-end 2022 at current strip prices. This rapid deleveraging opportunity accelerates the timetable for the Company's future transition from balance sheet strengthening to exploring return of capital opportunities.
- Improve cash margins
The addition of Primexx is expected to further expand Callon's leading cash margins and increase the oil weighting of its Delaware Basin production profile. Given Callon's established operations, minimal incremental G&A will be needed to consolidate the Primexx assets into the newly combined footprint.
- Support sustainability initiatives: Primexx has invested in a robust gathering and water management infrastructure that includes 80 MBbl/d of water recycling capacity and 60 miles of water transfer lines, more than doubling Callon's current water recycling capacity. This significantly enhances Callon's ability to manage its freshwater impact in the Delaware Basin while reducing overall development and operating costs.