Daily Energy Standup Episode #313 – Wind Farms Paid to Stay Offline and China’s Real Estate Woes: Affecting Oil Demand Dynamics

CNN — Russia is entering its third year of war in Ukraine with an unprecedented amount of cash in government coffers, bolstered by a record $37 billion of crude oil sales to India last year, according to new analysis, which concludes that […]

Highlights of the Podcast

00:00 – Intro
01:16 – Two Wind Farms Received Over $100 Million To Switch Off
03:42 – The Kremlin has never been richer – thanks to a US strategic partner
06:44 – Markets Update
08:50 – Oil settles lower, demand worries offset geopolitical price support
13:48 – Outro

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Video Transcription edited for grammar. We disavow any errors unless they make us look better or smarter.

Michael Tanner: [00:00:14] What’s going on, everybody? Welcome in to the Wednesday, February 21st edition of the Daily Energy News Beat stand up. Here are today’s top headlines. First up, two wind farms receive over $1 million to switch off. I’m not kidding you. That’s an opinion piece by Andrew Monfort over at the Climate Change Dispatch. We love them. Well, then quickly cover. The Kremlin has never been richer thanks to a U.S strategic partner. This feeds into our thread yesterday when we talked about India. And then I will quickly cover, what happened in the oil and gas markets today. Fairly quiet from a financial side. We did see natural gas futures pop a little bit. And then we had some earnings drop, specifically Matador and Chesapeake. I’ll talk a little bit interesting about why both those companies were actually down day over. Danny. That has more to do with, oil prices and where things are headed. But we will cover all that and a bag of chips. Guys, as always, I am Michael Tanner, rocking a solo show today. Stu has the night off. Well-deserved. So we are going to get a little bit more oil content than he used to, but we love that. [00:01:15][60.9]

Michael Tanner: [00:01:16] Let’s go ahead and dive right in. Though. Two wind farms received over 100 million to turn off, this is again, as I mentioned, this is an opinion piece from Andrew Monfort. We’ve we’ve we’ve segmented him on the show today. You know, and he says regular readers, will know that I’ve long been concerned over the extraordinary levels of payments that force wind farms to switch off. These are so-called constraint payments and are deemed necessary when the wires in the transmission grid have inadequate capacity to get a generators power to market. He goes on to talk about this idea that and not this idea. What happens is, is when there’s not enough grid capacity to hold the electricity that’s coming from the wind farms, it’s not just the wind farms are turned off, it’s that they are paid to get turned off, and a gas fired power station is paid to get turned on. That’s closer, so that the end user of the electricity is not, as he said, left short. And he has a chart here. I don’t know, Miss Produce. If you don’t mind pulling this chart up. Total constraint payments on wind farms have risen in 2023 to $382 million for a volume of about 4.3 terawatt hours, which is roughly four days of electrical demand thrown away entirely. I mean, it’s absolutely unbelievable. If you go talk about the the you know, he then breaks down the 2023 bill, we can pull up that next piece. These are wind farm constraint payments specifically to, the specific segments you’re seeing that the largest one, Moray East, gets $54 million, cannot be turned online that constrained that volume, ends up being 590GW, which is like 20% of its output, I mean, 20% of its output. It’s absolutely insane. This is the problem when you don’t have the grid ready to, to really take advantage of, even if renewables was working. And in this case it’s not working. But in this case it’s trying to supply power to the grid. And the unfortunate part is the grid can’t handle. So now not only do we have to just not have the wind for a moment, lose whatever benefits we might have, we’re also now paying them to shut down. It comes back to, we’re all for the cheapest amount of energy. And the problem is the way we’ve designed this whole renewable shift, we haven’t necessarily found the cheapest. So great article out there. [00:03:41][145.6]

Michael Tanner: [00:03:42] We’ll move on to the next one quickly. The Kremlin has never been richer thanks to a U.S. strategic partner. This goes back to a an article we talked about a few days ago, I think Monday on the podcast. Russia Now is in its third year, really at the war with Ukraine. This is a CNN article, and last year actually made a record number of crude oil sales sitting at about $37 billion of crude oil. But that’s specifically just to India. Okay. So $37 billion of crude oil sales specifically to India. This is according to a CNN analysis. So take it with a grain of salt and a lot of that crude and about more than 1 billion of that was refined by India and then exported to the United States as refined products move mostly to California, our favorite state, who you know there. Actually, it’s ironic, you go look at our stats. Most people from California love us. There are largest state. So we appreciate the listeners. The problem is you’re buying Russian crude and you don’t even know it. Bypassing the sanctions. It goes on to say that these flows of payments coming from India have increased via their purchases of Russia, grew by 30 times the pre-war amounts. And this is according to the center for Research on Energy and Clean Air, which was quote unquote, exclusively shared with CNN. They’re the they’re at the tip of the spear doing work. That’s a joke. You know, it really goes on to to kind of try to shame India and saying, Bad India, you shouldn’t be doing this. You shouldn’t be taking care of your people. I mean, this is where I think I differ a little bit with the street I’m of. For India doing what’s best for its people, as the United States should be doing what’s best for its people. Instead, we sort of dance this line of trying to walk the line of what’s good for everybody, even if it hurts us. But it also must make us, you know, it also must help us. I mean, you know, Prime Minister Modi has gotten straight down to the ax and said, no, I’m going to do what’s best for the Indian people. I know I understand that low cost access to low cost energy is the thing that have best brought in the entire world. Any first world country was brought to that point because of access to low cost energy, and that’s what Prime Minister Modi in India is trying to do. It’s why he’s buying a lot of Russian crude. So I don’t shame him for doing that. What I do shame, is Gavin Newsom for shaking its finger at Russia and then buying Russian crude via India. So India now’s the middle man. It’s making a spread on it. Gotta love it. So that’s all I’ve got for the new segment. Whenever Stu’s gone we keep it a little light. [00:06:04][142.0]

Michael Tanner: [00:06:05] There is a lot of oil and gas earnings I want to get to, so we’ll switch over to finance right now. But before we do that we got to go ahead and pay the bills here. Guys. As always the news and analysis or quote unquote analysis that you just heard is brought to us by the world’s greatest website, Energy News Beat.com The best place for all of your oil and gas and energy news, Stu and the team do a tremendous job making sure that website is up to speed. Everything you need to know to be the tip of the spear when it comes to the energy business. You can hit the description below for all timestamps links to the articles. You can hit us up. Dashboard.energynewsbeat.com Visit us again. Energy newsbeat.com. [00:06:41][36.7]

Michael Tanner: [00:06:44] You know overall markets a little choppy. Today we saw the S&P 500. stay fairly flat down about 6/10 of a percentage point Nasdaq didn’t do much better. It’s down 7/10 of a percentage point. We did see yields both on the ten year and that and the two year stay fairly flat 6.4 for the two year yield and six and for two for the ten year yield. We did see the dollar index stay fairly flat. Crude oil settles a little bit lower, mainly due to the fact that, you know, the the war in home, the war in, in, in Gaza has continued to kind of sway both ways from a geopolitical standpoint in terms of how much is it affecting oil prices, how much is is not. The interesting part that we did see today was the fact that, there’s a growing premium for crude month, crude oil futures for a second month delivery, which basically means, March. The current front month contract is getting about a $1.71 premium to why the second month contract is, which means beginning. We’re beginning to get in this really contango market. And that’s the widest it’s been about four months. What is what does that mean for the for the for to you guys. Well that means that, that the outlook for oil prices continues to get weaker and weaker. And I think the, the, the part of that has to do with what’s going on in China right now, you know, they did see yesterday their biggest ever reduction in their benchmark mortgage rate, which is basically the day the that this reference rate came out in 2019 is the largest ever and far more than analysts were expecting, as we’ve talked about ad nauseam on the show, that the Chinese real estate market is not doing well, and they’re going through kind of their own 2008 crisis, but this time with developers, not necessarily individual home buyers. And so, the amount of debt that stacked up is, has really kind of become to, to bite them a little bit. John kid Cliff over at Again Capital. We’ve quoted him a few times. The fact that the crude oil market has it responded more positively, shows you the depths of the oil demand problem in China, which is crazy because we’ve seen a, you know, the, the, the counter to why we didn’t see a huge drop in prices. [00:08:50][125.8]

Michael Tanner: [00:08:50] Today was again, the US vetoed a draft, by the United Nations Security Council resolution on Israel-hamas war, which was blocking, which was attempting to do an immediate humanitarian cease fire. And basically now it needs to go to the 15 member body. And it’s it’s it’s unlikely that this temporary cease, cease fire will happen. The U.S. was quoted or the UN was quoted as saying, this could lead to a slaughter and have to opine about the politics is all I know is if they’re if the war in the Middle East continues, that’s only going to be geopolitically unstable for oil, and it means it could go up. Now we’ve got the demand side that’s pulling down right now. So I think those are your tensions right now. Again, we settled it about, you know, we’re we’re sitting here about 552 here on the 20th. It’s about 7722. I think again, the big stuff that we’re going to see today, out of the oil and gas markets is earnings. We saw two companies drop earnings, Matador and Chesapeake. We’ll start with Matador. You know overall the market did not like their day. they were down about a basically a full percentage point, mainly off the back of a few things. You know, record oil production, lower revenues. [00:09:56][65.8]

Michael Tanner: [00:09:56] That’s never going to lead to a great combo. So, you know, kind of the top line head number is that they achieved record quarterly average production of about 154,000 boe a day, or about 88,700 barrels of oil per day. You know, they had good net cash provided by operating, but. Give you guys an idea of oil and gas revenues. Let me scroll down. He’s one of those companies that love to do a massive drop. Oil and gas revenues year over year, which is now we’re kind of seeing the full year guidance actually dropped, by about $400 million. Which is, mainly due to a little bit of a little bit of oil prices, but have a lot to do with, the fact and, and which is, which is funny because we’ve we’ve now gotten to the point where prices haven’t really gone down much. You’re now doing record record oil production, which means you’re turning on wells at a record pace. They turned on 39 wells in quarter four. Okay. And revenues are going down. I mean overall market’s not going to like that. And I got gonna like 3 billion in revenue versus 2.8 billion in revenue a drop. And oh but we’ve increased production. Well great. You’re losing money still and not losing money. But your your revenue is quote unquote shrinking. Do I think they’re in Seminole decline. No stock still at 5874. They’ve got an absolutely you know they’ve got a great asset. You know they they they they do a really good job in my opinion, of kind of being very honest with where with where they stand out. I, I love watching their presentation specifically. But you know, the market’s not necessarily going to enjoy gross production. Highest it’s ever been. Oh but revenues I mean that’s why you’re, you’re you’re seeing a 1% drop in the other company. We saw Chesapeake I mean I mean their stock was down 1.3 percentage points, mainly off the back of I think the future outlook of what’s going on. I don’t think their stock price right now or or the today’s movement is really indicative of, of their earnings release. They did, come out and say, you know, basically their their total net income was about 2.4 billion. And if you adjust that for net income, you if you do adjust, you know, adjusted net income gets get you down to 702. Again, that’s non-GAAP EBITDA tax, which is again interest before earnings and taxes, depreciation, all the other junk, 2.5 billion free cash flow about 551 million. They did about, you know, 840 million of share repurchases. You know, they’re really what they did on this call was great. Oh, let’s talk. We had a good, you know, good ish. What is a good ish portfolio. You’re doing about 3.4 BCF a day. And that’s net about 98% of that. You know, natural gas a little bit of NGLs. They did close the remaining divestiture packs for about 700 million. I feel sorry for feel sorry for that company who bought that. You know, I, I think the biggest, the the biggest reason why this the street was a little concerned. I mean, it mainly has to do with the fact that they’re, they’re, they’re slowing down their rigs. So right now they’re operating nine rigs, five in the Haynesville, four in the Marcellus and four frack crews both, you know, two in the angel, two in the Marcellus. They said that they’re going to go ahead and defer completing any new wells. And so you’re what that shakes out to is they’re going to drill 95 to 115 wells, but only going to turn 30 to 40 of those on so higher than expected capital expenditure. You know, and really what they’re trying to do is align with the market. I mean it’s as we sit here dollar 70 natural gas I mean that’s it’s tough to to to make your money on. So I think from a from a from a strategy standpoint unfortunately it makes sense. I don’t think the street is going to like it. But I mean equity was down 2.8 percentage point today. So I think with them being up front about where the market is and where they are relative to the market, I think that, you know, kind of continues to help them play out. But not a good day for oil guys. I mean, again, a lot of these oil and gas comes. You’re going to trade relative to where, oil prices go. So I, I tend to stop and, and really not talk about individual stocks only on earnings day though, because it kind of gives you that insight into where that street might be going. [00:13:48][231.6]

Michael Tanner: [00:13:48] But that’s really all I’ve got. Appreciate everybody holding out for us. You know, a lot of good stuff. Still be back in the chair tomorrow for a final episode of the week, and we will make sure, to cover everything that is, going on, and we will, not dot the final show till we are. Yeah. Wednesday and then Thursday. We’ll get that cranked out, so appreciate it, guys. We’re on Michael Tanner. We’ll see you tomorrow. [00:13:48][0.0][808.3]

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