COVID-19 Clouds Oil Demand
After the rise in prices over the summer, many analysts are struggling to predict oil prices due to the uncertainty of fuel demand from factors such as rising unemployment, changing work patterns, study, and travel. High-frequency data has allowed analysts to track the demand for oil in real-time by analyzing traffic congestion and flight activity. Uncertainty in short term predictions has extended into the long term outlook for the oil market, as many corporations transition away from fossil fuels and towards renewable sources of energy.1
Saudi Aramco Slows Down on Diversification
Saudi Aramco, the biggest oil producer globally, has delayed multiple expansion plans into Texas, China, India, and Pakistan due to a collapse in oil demand. Expansion plans were aimed at increasing crude production capacity and diversifying into natural gas and petrochemicals. In its December IPO, Saudi Aramco promised to pay its shareholders $75 billion in annual dividends, incentivizing investors to pay a premium for the company’s publicly traded stock. While other Oil Majors have cut dividends to preserve cash, Saudi Aramco lacks that financial flexibility because Saudi Arabia, which owns 98% of the company, relies heavily on its funding dividends.2
Oil and Gas Drilling in the Arctic Wildlife Refuge
After decades of legal battles, Interior Secretary David Bernhardt has announced plans for an oil and gas leasing program, paving the way for drilling in the AWR. More than 1.5 million acres are expected to be opened for oil and gas leasing or exploratory activity, with some regulation regarding wildlife protection. Although the refuge is being opened for leasing and exploration, many policymakers believe that any oil company seeking to drill in the AWR would face several reputational, legal, and financial risks.3
Chevron Buys Noble Energy in an All-Stock Deal worth $5 billion
In the largest oil deal since the pandemic, Chevron is taking advantage of Nobel Energy’s high-quality distressed assets. The acquisition will give Chevron access to Noble’s flagship Leviathan field in the Eastern Mediterranean, which began producing natural gas in 2019. Many Oil Majors took on debt before the pandemic, putting them in difficult positions to make payments on the debt, considering the historic drop in oil prices. With these challenges, the industry's consolidation is imminent, and Chevron is uniquely positioned to take advantage of this with relatively low debt compared to its competitors.4
BP $1.1 billion stake in U.S. Offshore Wind
British energy giant BP announced a $1.1 billion deal to buy the power assets of Equinor. In the deal announcement, BP said that it is taking a 50 percent stake in two wind farm developments in the northeastern U.S. BP believes this deal will help it grow its renewable energy business, pivoting from fossil fuels. The industry's high entry barriers have attracted specialized developers, energy majors, and large-cap utility companies, who have found a way to differentiate their offshore operations and generate comfortable returns on their investment.5
General Electric Pivots Away from Coal-Fired Power
Although General Electric still considers itself the number one “steam and coal power franchise,” it has started to shift away from coal-fired power to concentrate on renewable energy. General Electric will maintain its coal and nuclear facilities but expand into a power generation business with a more attractive growth and economic trajectory. Initial expansion began through a wind power deal, in which General Electric will supply the Dogger Bank Wind Farm with 190 wind turbines.6
Clean Energy Jobs with a Slow Rebound
Clean energy, which was one of the fastest-growing sectors in the U.S. economy before the pandemic, has experienced rapid job loss due to the pandemic. Of the 500,000 clean energy jobs in the U.S. lost due to the pandemic, only 3,200 have returned. The slow rebound can be blamed on pandemic-related restrictions and consequences that have affected the industry. Industry backers have called for $100 billion in fiscal spending to rescue the industry. Analysts estimate that this would produce $330 billion in economic activity and add 860,000 new jobs over the next five years. In comparison, the fossil fuels industry received $72 billion after experiencing the loss of 118,000 jobs.7
Challenges Ahead for Nuclear Power
As one of the least carbon-intensive sources of power, nuclear power plays a large role in decarbonization. As the temperature of the ambient water and air rises, nuclear facilities become less effective and efficient. For every degree of Celsius increase, a plant’s output shrinks by an estimated 7% - 12%. Additionally, with competition from other clean energy sources and currently low power prices, the already razor-thin margin nuclear power industry faces more financial distress. These struggles have caused many nuclear plants to choose between closing down or repairing their broken-down facilities, with most choosing to close down. For example, Exelon-owned nuclear power plants Byron and Dresden have shut down, crippling a fifth of Illinois’ electricity.8 9
Largest Transactions Closed
- Cheniere Energy Partners, L.P.
- The Blackstone Group Inc. and Brookfield Infrastructure Corporation
- El Paso Electric Company
- J.P. Morgan Asset Management, Inc.
- Mankato Energy Center
- Southwest Generation Operating Company, LLC
- CNX Midstream Partners LP
- CNX Resources Corporation
- Vivint Solar, Inc.
- Coatue Management, L.L.C.
- Assets of Rymes Propane & Oils, Inc.
- Superior Plus Corp.
- Quintana Energy Services Inc.
- KLX Energy Services Holdings, Inc.
- North American Electricity Transmission Operation
- Six Operating Wind Farms in Elmore County, Idaho
- Innergex Renewable Energy Inc.
- Pomona Energy Storage Facility in California
- Ormat Nevada, Inc.
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes