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ADNOC Moves Ahead With Huge LNG Export Project in UAE

Houston energy company to build largest new refinery in half a century

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Michael Tanner: [00:00:14] What’s going on, everybody? Welcome into the Thursday, June 13th, 2024 edition of the Daily Energy News Beat stand up. Here are today’s top headlines. First up Adnoc moves ahead with huge LNG export project with the UAE. We will fly back to the United States then and cover U.S. LNG. That ship to Asia is still cleaner than cool coal. Who would have thought? I will stay in the U.S. Houston Energy Company to build largest new refinery in half a century. You love to see it. And bank Citibank now is saying oil could crash to sub 60 level. Interesting. Taking a little bit different approach than our friends over at Goldman Sachs. Stu, Then toss over to me. I will quickly cover what happened in the oil and gas markets. And really what we’re going to talk about is one fed deciding to keep interest rates the same that happened yesterday Wednesday afternoon. And then a pretty crazy EIA report, which we will cover in depth. And then we’ll wrap it up with Matador Resources going ahead and announcing a about a $1.9 billion all cash transition, to beef up some of their Delaware Basin acreage. It’s a pretty interesting deal. We will dive into all that and a bag of chips, guys. As always, I am Michael Tanner, joined by Stuart Turley. Where do you want to begin? [00:01:28][73.5]

Stuart Turley: [00:01:29] Hey, let’s start where everybody is over there. What Adnoc had, you know, see moves ahead with huge LNG export project in the UAE, Abu Dhabi’s national oil company. Add in. She’s taking the final investment decision to move forward with the rurales LNG project. It’s pretty darn cool. Listen to this, Michael. It will more than double the existing LNG production capacity in the UAE. Holy smokes Batman, listen to these numbers. They bought Adnoc, bought an 11.7 stake in phase one of next decade Rio Grand LNG export project in Texas. That is nuts. [00:02:13][44.2]

Michael Tanner: [00:02:13] Yeah. No, that’s down near Brownsville. It’s the first U.S. LNG project that’s quote unquote offering expected emissions reductions of more than 90% through an approved carbon capture and storage project. We know they’ve also signed a 20 year offtake LNG agreement with the Rio Grande LNG train for with next decade. So they’re also going to be the ones buying it as well. They’re going to own a little bit of the the export facility that they’re going to also be the one that’s that’s buying it. So love to get on that. I mean, these these, you know, these, these Middle Eastern countries are starting to make massive investments in LNG. They’re allowed to think 20, 30 years in the future because that’s the time frame in which they look at a little bit different than I think what happens here in the United States. But it’s pretty big. That project there over in UAE, stew, it’s going to be about $5.5 billion. And they awarded they also awarded a what they call an EPC contract, which is just all of the, engineering, procurement and construction stuff for nuts. [00:03:07][53.4]

Stuart Turley: [00:03:07] I’m very happy for them. Anytime we can see long term LNG contracts, I’m all excited. I think it’s fantastic. Yeah. [00:03:14][7.3]

Michael Tanner: [00:03:15] What’s next? [00:03:15][0.4]

Stuart Turley: [00:03:16] Let’s go to U.S. LNG shipped to Asia is still cleaner than coal. Michael, let’s go through these top bullet points and some numbers here. U.S LNG shipped to Asia has a new lower value chain emission footprint than other coal fired generation, even over longer distances. I was, I’m sure, reducing methane leakages in the LNG value chain can widen the emissions gap. Wow. Don’t pull my finger on the boat is what they just translates that to. Uncertainties regarding methane emissions and variations in emissions intensify between different sources and types of LNG and coal. Coal still not clean, I mean, but if you do it right, it can be. Greenhouse gas emissions from other energy sectors are high. And when you take a look at the lifecycle emission for LNG, for coal compared to coal generation, that little chart there in the center of it from right, everybody’s over there at Rystad. That’s pretty amazing. When you ship coal and then burn coal, it’s bad. [00:04:23][67.9]

Michael Tanner: [00:04:25] Yeah. I mean, this is kind of like a door, like if, if. [00:04:28][3.2]

Stuart Turley: [00:04:28] You some toy. [00:04:29][0.6]

Michael Tanner: [00:04:30] And so for all the people that are against LNG, aka the Biden administration with their LNG exports, this is the chapter you would be looking at because if the China can’t get their hands on LNG, well guess what, they’re going to keep burning coal because they don’t care. [00:04:42][12.1]

Stuart Turley: [00:04:42] Let’s help the planet and the planet needs LNG. [00:04:46][3.3]

Michael Tanner: [00:04:46] I’m I’m putting worried. The real for today’s episode has to be Stu. Let’s help the planet. You wouldn’t wouldn’t have thought I’d heard that. [00:04:53][6.9]

Stuart Turley: [00:04:54] No. You want to kill all the whales? I want to save the planet. I’m all about saving people and humanity. It’s pretty sad when the old guy in the room is the humanitarian. Okay, let’s go to the next one. [00:05:07][13.6]

Michael Tanner: [00:05:08] That I word I’d use to describe you. Stu is humanitarian. What’s next? [00:05:11][3.3]

Stuart Turley: [00:05:12] Human is what nobody calls. I mean a Houston energy company to build the largest refinery in half a century. Listen to this. It will process more than 160,000 barrels of gasoline, diesel and jet fuel from shale oil production. Pretty interesting. Element Fuel Holdings is spending between 3 and 4 billion on the project, which will produce more than 160,000 barrels per day of diesel jet fuel. And that’s pretty cool. [00:05:45][32.9]

Michael Tanner: [00:05:45] What’s also crazy is that Element Fuel Holdings is a relatively new company. They also say they intend to produce enough hydrogen and supply all the refineries power needs, which is going to, apparently, according to them, significantly reduce their emissions compared to the old refineries. Again, this is a Houston based firm. You know, I would have expected a bigger boy to get one of these. You know, this isn’t a shell. This isn’t an exxon. This isn’t a chevron. I mean, this is a smaller company. It’s good to see. I’m glad they went ahead and got this approved down there in Brownsville. But I it goes to show you how necessary new refineries are and how new you can make them, especially if you can produce enough hydrogen where you don’t have to. You can run itself to self-perpetuating refinery. [00:06:25][39.5]

Stuart Turley: [00:06:25] And and the fact that we got a new one since it 50 years that to me is out of the park huge. It’s pretty good to provide a thousand new jobs. We like jobs. [00:06:37][11.5]

Michael Tanner: [00:06:37] We love jobs. That’s the key. [00:06:38][1.0]

Stuart Turley: [00:06:39] All right, let’s go to Citibank. Here at Citi says oil could crash to sub 60 level. You know I don’t know how to price oil anymore. All I know is we got a trading desk now, and we’re getting requests for buying and selling crude, so might as well have a story about it here. Citi analysts have painted a bleak picture for the oil market. I disagree with them, but forecasting a significant price drop by 2025, according to the latest note, is $60 a barrel for Brant. I disagree, but then again, what do I know? [00:07:12][32.8]

Michael Tanner: [00:07:12] Well, I think I mean, let’s hear what they’re saying here. You know, their their their report and we’ve you dive into their report a little bit. They basically say the short term volatility may lead to some upside risks though that their longer term trend is bearish. You have to realize that 60% Brant as well. They’re not talking about WTI. You know I think what they’re doing is is they’re attempting to read the tea leaves on the opposite side and make the bearish case for an oversupplied market. It’s really the only way you can get to this number is is is really trying to figure out, okay. You know this is the I guess what am I trying to say. The way to make a bearish case has everything to do with we’re oversaturated on oil. I mean we’re about to see the EIA come out today. If you’re looking down that road, you know, and you’re looking at through that lens, I could see maybe how you get to this number. But that’s a pretty drastic cut I mean and and it would and maybe what they’re and maybe what they really do as an anticipating a Trump administration who’s going to who’s going to come in and encourage. And people are going to be more encouraged to drill. On the contrary, how more productive, how much, how much more money are you going to make at 55, $50 WTI drilling new wells than you are just producing your current production base at 75? Who knows. [00:08:23][71.5]

Stuart Turley: [00:08:24] Exactly. But also let me ask this. Contrastingly, as Citi’s outlook for copper is bullish with a projected price surge to 12,000 per ton. Are you watching copper prices, and do you think that that is a good number? Because if they’re calling for the bear in on oil, are they bullish on copper? And how does that number sound to you? [00:08:47][23.4]

Michael Tanner: [00:08:47] I ain’t I ain’t watching copper unfortunately. So I’m going to I’m going to have to take I’m going to have to read more research on that. I’m surely not going to take one bank’s perspective, but I find interesting that city is doing as you can. Everybody is bullish on oil. You’ve got we know where JP Morgan. We know where Goldman Sachs it’s cities kind of pasted the opposite one in. And again I’m not sure if this has much to do with where they see the US election going in terms of if. [00:09:11][23.6]

Stuart Turley: [00:09:11] You mentioned that starts. [00:09:12][0.8]

Michael Tanner: [00:09:12] Pumping a lot more oil. Well, price is only going to go down because the more supply, if we’re already oversupplied and you anticipate more oil coming online in a Trump administration versus a Biden administration last. [00:09:23][10.9]

Stuart Turley: [00:09:24] Time. [00:09:24][0.0]

Michael Tanner: [00:09:24] Last, maybe that’s what they’re thinking. [00:09:25][1.1]

Stuart Turley: [00:09:26] This time. President Trump had some really low oil prices, even though. [00:09:30][4.0]

Michael Tanner: [00:09:30] It was low even without Covid. [00:09:32][1.4]

Stuart Turley: [00:09:32] Oh, absolutely. [00:09:32][0.1]

Michael Tanner: [00:09:33] So why we’ll jump over here and cover a pretty crazy EIA crude oil inventory build. But before we do that guys, we got to pay the bills. As always, the news and analysis you just heard is brought to you by the world’s greatest website, EnergyNewsBeat.com the best place for all your energy and oil and gas news. Doing the team do a tremendous job making sure that website stays up to speed. Everything you need to know to be the tip of the spear when it comes to the energy and the oil and gas business. You going to hit the description below? Check out all of the links to the articles that we talked about. Timestamps to all the different segments. They may be plus or minus 30s. And then you can also, as you mentioned, check out our aforementioned trading desk. Which have a link in the bio there. If you’re looking to buy, sell or source LNG, crude oil, jet fuel, any type of you know, what a, you know, refined product you can you know we are are are definitely in the market for that. So go ahead and hit that description below. Whether it’s U.S. or international, whether you’re buying or selling. We’ll get you connected and get you get that marketplace going. So again hit that. That’s energynewsBeat.Com/trading desk school. Pretty interesting Day [00:10:41][68.5]

Michael Tanner: [00:10:42] Overall market you know our you know we’re recording this Wednesday afternoon. Things are sort of in a little bit of a tumble. Mainly due to the fact that the Federal Reserve came out today about or came out on Wednesday at about 2 p.m.. And, and Jerome Powell announced that there is no rate cut. They’re going to stick at that guidance of a two 25.25 to 5 and a half percentage point. They he revised it down as well. The number of rate cuts. Remember at the beginning there was an expectation, as stated from the fed that they were going to do three rate cuts. He’s now said we may only expect one. This comes after a a scathing letter. And I say that is massive sarcasm from Elizabeth Warren and two other Senate, U.S. senators talking about how we need to lower interest rates because that’s what the UK is doing. And I’m like, great, we should all we should definitely be doing what the UK is doing. Absolutely. We should be doing what the UK is doing. And if you can’t smell the sarcasm dripping off my breath, then I’m sorry to hear that. I’ll probably move closer to the mic. So that’s really what’s driving markets. They were up about one and a half percentage points today. currently or on Wednesday currently going, you know, currently sitting here about a quarter, about three quarters of a percentage point and tumbling Nasdaq just up a little bit over one percentage point but again tumbling their US two and ten year yields down 1.6 percentage points and 1.8 percentage points there. So US interest rates taking two and ten year yields take a nice tumble there. with the ten year actually doing worse than the two year dollar index down half a percentage point. Bitcoin fairly stable. It’s up about 9A1 percentage point 67,809. But as as expected it will probably continue to rise in face of of no rate cuts crude oil up about a half percentage point after a pretty tumultuous day relative to relative to where obviously a interest rate cut would have been bullish for oil. Not seeing and seeing a revised down of cuts doesn’t necessarily help. It’s sitting at 7829 and Brant Oil 8224. You know, really what we saw was an inventory build from the EIA, which was unexpected. As I mentioned. You know, the AP yesterday hit about a 2 million barrel draw. Well, today we saw about a 3.7 million barrel build from the EIA. And that’s compared with a build of about 1.2 of last week. And then as I mentioned the API crude oil inventory. Guess. And we also did see a gasoline inventory build of about 2.6 million barrels, with production averaging about 10.1 million barrels a day in distillates. We showed an inventory increase about 900,000, then production averaging about 5 million barrels. That’s compared with, 3.2 million barrel increase in this with 5.1 million barrels per day of production. I mean, pretty, pretty substantial build here. It’s really kind of there was an interlocking moment there when the report came where oil was sitting just above $79 and took a tumble all the way to, you know, the mid 70, you know, the mid 77, 50 have since climbed its way back up to where it’s sitting now, 7830 as we record this. So, you know, movers and shakers there, you know, watching to see how Citibank comes out later this year and justifies their, justifies their prediction depending on where things go from here. The last thing I want to talk about is Matador Resources. They come out today and announce a, quote, strategic bolt on acquisition in the Delaware Basin. If you’re reading the press release, pretty interesting, a deb acquisition, they go ahead and swoop up for an all cash payment of $1.9 billion. Meredith is a portfolio company of the aforementioned end cap resources. This is the second time that Matador has come in and scooped up an end cap. Back to private equity company, back in 20 early 2023, they went ahead and scooped up Advanced and Advanced Energy, which is another end cap company. So they you know, maybe there’s something to to watch out for there in terms of any time in cup spend and cap spins up a portfolio company, it’ll be interesting to see where Matador comes down line again. Matador. You know, their strongest position there is in the Delaware Basin, which is on the New Mexico. And, you know, the western New Mexico or the western side of the Permian Basin, which encompasses eastern New Mexico and the Horn of Texas. Right there. That’s their largest position they want. They go ahead and with this acquisition, add about 190,000 net acres. Or excuse me, that’s their total acreage count. Excuse me. And their amount of locations that they go ahead and purchase is somewhere around 321, which brings their total net locations up to about 2000. To give you guys an idea, you know, on the American EV asset, they go ahead and scoop them up. PDP ten on that is about 1.46 billion. So you can see a little bit of a. Premium there. You know, what’s interesting is that they expect the adjusted Ebit of those assets was about 425 to 475 as of strip pricing. That’s a 4.2 multiple on EBITDA relative to the purchase price, which is a little bit crazy, and I think has a lot to do with the fact that a lot to do with the fact that they feel like there’s some upside relative to the develop, you know, resources or some of the duds. You know, it’s also a 47,000, which basically works out to a 47,000 per flowing BOE metric, which, I mean, those are two really, really big numbers. And there’s a lot that’s interesting about this deal. It’s a very nice consolidated piece of acreage down there in the Delaware Basin. It’s very contiguous. It’s extremely helpful. It’s 33,000 acres total, 99% of that operated. It’s about 300. And I mentioned 71 net locations, all with about 86% working interest. Obviously you’re talking you know, you’re you’re wolf camp in your Bone Springs. It’s it’s you know, they talk a lot about, you know, their methodology of estimating inventory. We could get into that, you know, pretty crazy. There also is a a 19% stake in the pinion midstream which kind of gathering and treatment facility which increases your ability for gas take away. It’s one of the big problems out there in the Delaware Basin. So you know Jeff Crimo we’ve talked with him before on the oil on the Deal Spotlight podcast, specifically Schlumberger Champ X. He wrote a really nice LinkedIn post on this. I’d recommend everybody go check him out on LinkedIn and check out his newsletter, where he talked about the interesting nature of the fact of this all cash deal in a world where the last seven deals that we’ve evaluated have all been heavily stock based. And so the real, you know, and what he points out is generally when you buy with all cash, you’re issuing new debt. So the real question is where do they see, you know from matadors perspective where, you know, and that’s exactly what they’re going to do. They’re going to increase their their their debt. Now they claim they’re they claim with the increase in EBITDA, they’re actually going to lower their, you know, their leverage ratio. They’ve they’ve got it right up here. Where was it I was reading here. Preserve magic strong Balaji pro forma leverage. Expect to be 1.3 a closing and backed by one point at 1.0 by the middle of 2025. So what they’re saying is, yes, we’re increasing our debt, but our leverage is going to stay the same because of the increase in EBITDA relative to these, you know, relative to these assets. I mean, if you’re adding revenue to your business, but you’re adding debt, it can be net neutral from a debt ratio standpoint, you just better hope there’s enough revenue. And that’s always the key. It’s always the key. It’s not is there revenue. It’s is there enough revenue to cover that leverage? It does look like they believe with by drilling those new locations and hopefully some net debt reductions, they can get that leverage back below what they claim their target is at a 1.0. But, you know, I had actually heard rumors of this deal a couple of weeks ago. You know, you know, Matador, as I mentioned, loves and cap stuff. So I wouldn’t be surprised if this same management team now breaks off, goes buys another six us, you know, consolidated acreage position out there in Delaware Basin this season. Two years. They can’t flip to Matador. It seems like you know end cap and Matador seem to have a great relationship going on there specifically from a value add. I think the interesting part we’ll see a year from now, we’re going to be able to have two full years of the advanced energy deal, and another and a full year and a full year with the Amara, and it’ll be interesting to see kind of how those have shaped out for them. But I think there’s there’s a clear strategy here for both Matador and Cap. [00:18:40][478.5]

Stuart Turley: [00:18:41] That’s right. Good numbers, good management, good numbers. [00:18:43][2.0]

Michael Tanner: [00:18:43] Yeah we like I matadors right down the street here for me right here in the Galleria here in Dallas. But they also you know, they’ve proven they’re one of the few companies that are still led by their CEO founder, chairman. It’s one of the few dictatorships that’s working in my opinion. [00:18:57][13.7]

Stuart Turley: [00:18:57] Well, like my household. Yeah. [00:18:59][1.5]

Michael Tanner: [00:18:59] Well. Well, yeah. Okay. I’ll leave it at that. We love you. Have you working on a. [00:19:04][4.3]

Stuart Turley: [00:19:04] Bunch a Berkshire a picking up another 2.57 million more shares, 2.57 million more shares from Occidental. Wow. [00:19:13][9.5]

Michael Tanner: [00:19:13] Hey, they’re eventually own. And at some point what Berkshire Oil. Is that what they’re going to rebrand to? [00:19:18][4.2]

Stuart Turley: [00:19:18] Yeah, I think so. It’s what they own 28.3%. [00:19:19][1.5]

Michael Tanner: [00:19:21] Now once Warren just kind of put himself as CEO. [00:19:24][3.0]

Stuart Turley: [00:19:25] I don’t know, maybe he’s getting ready to like do that. He’s going to retire from Berkshire and go run oxy. [00:19:30][5.4]

Michael Tanner: [00:19:31] Yeah I doubt that. So all right guys. Well with that we’ll let you get out of here. Finish up your Thursday. We will not be who we running tomorrow before we let him go. Who we running on Friday. The podcast. [00:19:41][10.1]

Stuart Turley: [00:19:42] We got four podcast getting ready to rumble out and let me get the list here real quick. We’ve got some good ones here. It figures it’s the system is a little slow here. We have coming around the corner. Ronald Stein is one of them. We have Troy Eckert finally out of production. Ronald Stein, we have Adam Goodman has just went out last week, but the transcript is going to be done. And then we have Prince Tiana Ford going out next week. Lots of good stuff. That was a fun one. [00:20:13][31.8]

Michael Tanner: [00:20:14] Yeah. No. Absolutely. Everybody check that out. You can hear the weekly recap on Friday, and then we will be back in the chair on Monday for you guys. We appreciate you sticking with us. Hope you guys have a great weekend. Don’t die of the heat. Best of you here in Texas. Watch out for air court. We know they’re coming for you. Stay cool, stay safe. And we will see you guys on Monday. [00:20:14][0.0][1178.1]

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