Energy, Power & Infrastructure Industry Update - March 2019

Oil & Gas | Oil Has Best Start to a Year Ever as OPEC Production Falls

“Oil prices are off to their best-ever start to a year as fears of a supply glut cool, part of a 2019 recovery in risky investments from stocks to commodities. U.S. crude-oil futures have rebounded 25% in the first two months of the year, according to Dow Jones Market Data, the best January-February performance in figures going back to 1984. Oil is also heading for its best two-month stretch generally since 2016—when prices recovered in April and May of that year after dipping below $27 a barrel. This year’s rally comes after a punishing decline. Crude prices fell 44% from their multiyear peak in early October to a Christmas Eve trough as investors fretted that a global economic slowdown would weaken demand for a range of commodities. Energy investors have been among the biggest beneficiaries of the Federal Reserve signaling a cautious approach to further interest-rate increases and the U.S. and China moving toward a trade agreement. The S&P 500 energy sector has risen 14% so far this year, versus 11% for the broader index.”

The Wall Street Journal

Utilities | Electric Companies Overspend by Billions, Driving Up Utility Bills

“Electric utilities across the United States are overspending by billions as they’ve ramped up spending on aging transmission lines and other equipment, recent reviews show, with no competition and no upfront scrutiny in many cases. That means higher electric bills for customers forced to pay off the costs, critics charge. An estimated $8 billion in savings in five years could be achieved if just a third of all major transmission projects across the nation were opened up to competition, according to a report by the Brattle Group, a global consulting firm that analyzed FERC and regional data from 2013 through 2017. Just two percent of all projects went through a competitive process, they found. Projects handled by the large utilities escalated costs by 34 percent on average over original estimates, while winning bids by independent companies, when allowed, averaged 40 percent below estimates. Nearly half of the projects did not undergo public review or planning approvals. To fix the problem, the Brattle report makes two other recommendations: consistent project criteria and cost tracking across all regions, and drawing from best practices of the least restrictive regional transmission operators. ”

USA Today

Telecommunications | How 5G Networks Will Change America

“Telecom companies face the constant need to invest in new infrastructure, while staying competitive on cellphone costs for customers. To truly realize the potential of 5G networks, telecom operators must find cost-effective ways to roll out 5G that won’t increase the end-cost to the consumer. While 5G small cells are wireless, one cable remains: the power cable. That cable is very expensive. Long distances in rural areas and concrete in urban areas increase the cost of connecting to the electric grid. To achieve maximum benefit, 5G networks need to cut that last cord and be wirelessly powered. Otherwise, the 5G rollout will be too costly and slow. Construction disruption will impact our cities. Remote and rural areas will still be surfing on slow speeds and will fall even further behind in the digital revolution. 5G presents a huge business opportunity in the telecoms market. The companies set to benefit most from this revolution are the telecom infrastructure companies, or cell tower REITs, which own cell towers and rent space on them to the network providers like AT&T or Verizon.”

Forbes

Oil & Gas | Permian Shale Primed for Mergers & Acquisitions

“Cowboy boots and turquoise belt buckles are giving way to smart suits and silk ties as the world’s biggest shale oil field prepares for mergers. But the century-old oilfield cycle of big players swallowing up smaller ones may not happen quickly or follow the conventional path. The supermajors, facing investor pressures of their own, are unwilling to throw cash around like they did in the heady days of $100-a-barrel oil. All-stock deals could be dilutive because many U.S. independents trade at higher price-to-earnings multiples than integrated oil companies, according to data compiled by Bloomberg. Diamondback Energy Inc. and Concho Resources Inc. pulled off all-stock deals that together were worth almost $20 billion last year, showing a willingness to merge their way to gain scale. Pressure has mounted on Permian-only and smaller companies in recent weeks. Pioneer Natural Resources Co. and Halcon Resources Corp. replaced their CEOs while names such as Alta Mesa Resources Inc., Centennial Resource Development Inc., and Laredo Petroleum Inc. have seen their market values decimated.”

Rigzone

Infrastructure | Private Money Takes on Bigger Role in Airport Projects

“As governments reduce spending on infrastructure, private companies are moving into airports big and small, paying for private terminals with new types of services and teaming up with local agencies to renovate existing terminals. The so-called public-private partnerships, or P3s, have created new possibilities for airports, which have struggled for years to find the money to improve terminals and accommodate an increase in passengers and cargo. An Airport Council International report released in 2017 estimated that airports would need almost $100 billion for capital projects over the next five years, but would only be able to finance about half that amount. ”

The New York Times

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