Ancova's Model
Thank you to the over 1,000 of you that have signed up for our newsletter the last few months. Since there are a lot of new people here we thought we would make this post about Ancova and what we do, for those who don’t know.
We when started Ancova Energy we had a simple mission statement, help our clients achieve the best available price for their products, using a transparent and aligned incentive structure.
We have 3 core parts of our business:
· Producer Services
· Energy Marketing
· Engineering, construction, and operations
Producer Services
Ancova provides consulting for oil and gas producers to help them navigate the commercial functions of their business.
This includes:
· Commercial strategy development
· Negotiating midstream contracts
· Netback and financial modeling, including forecasting revenue
· Coordinating bringing new wells to sales
· M&A due diligence on the buy and sell side of upstream transactions
· Contract administration, including creating a database for all contracts
· Contract compliance to ensure correct and accurate payment
· Midstream capacity and takeaway planning and management
Energy Marketing
Ancova’s energy marketing business model is to eliminate conflicts-of-interest in the product sales function by creating a clear line of demarcation between the “broker” and “market maker” function.
What we do:
1. We competitively bid our client’s product out to multiple market makers, while protecting their confidential information (drill schedules, volume forecasts, etc.)
2. Provide 100% netback-based marketing services, where the price we receive for the product is passed back directly to the client (no hidden margins or fees)
3. We charge fixed fees that are transparent and listed on all our purchase statements for clients to see exactly how much we charged
What we don’t do:
1. We never take a speculative position in the market (i.e., price risk), or trade on our own behalf using our clients’ volumes or information
2. We never make a hidden margin or fee that is not disclosed to our clients
3. We do not use confidential information to trade a separate book of business or front-run client volumes
4. We do not use leverage or use margin to trade (the company has no debt)
Engineering, construction, and operations
Ancova has engineering expertise on staff that has built over $1 billion in midstream and oilfield infrastructure projects. We saw an opportunity to help producers and midstream companies avoid costly third-party engineering and project management groups, using our cost effective outsource model.
This includes:
· Midstream system design
· Midstream contract operations
· Facilities design and construction
· Coordinating regulatory and land functions
· Hydraulics modeling
If you are a producer or stakeholder and want to learn more about our services, you can send me a direct message or reach out through the contact us page at www.ancova.com
Talk Energy Podcast
This episode’s guest is Austin Mitchell, the CEO of Synota, where he is using the power of the Bitcoin lightening network to change the way that energy payments are made. Austin has a background in the traditional energy world and has worked for a variety of energy companies during his career.
From the experience he gained working in the utility sector, he saw how the Bitcoin network had the potential to change the financial side of how energy is monetized. This episode we discuss the power of proof-of-work, and how it ties the physical world to the financial world.
We discuss how Bitcoin is changing the energy landscape and how the Bitcoin network is a base layer that developers can build on to create second and third layer payment solutions for energy companies.
Lastly, we talk about the evolution of monetizing energy, and how in a not too distant future, using the lightning network will feel as obvious as using the internet does today.
Hope you enjoy the show!
Market Update
Crude Oil
At the time of the report, WTI was trading at $81.69/bbl. Prices lowered on Wednesday (and again today) as geopolitical concerns were eased after NATO confirmed Russia did not fire upon Poland. However, there is still plenty of upside of oil prices due to the impending European embargo on Russian crude an low inventories leading into winter.
President Biden has asked Congress for $500 million to modernize the SPR. The current SPR levels are 400mm bbls, which is less than a month supply of crude for an emergency. “The proposal would allow the SPR to both maintain operational readiness levels and also alleviate anticipated shortfalls due to supply chain issues, the COVID-19 pandemic, and related schedule delays,” said Pelosi.
In September 2022, global oil demand exceeded previous pre pandemic September 2019 demand. Also in September 2022, global crude production was just slightly less than pre-pandemic levels, while global inventories are ~450mm bbls less.
On the cusp of the European embargo on Russian crude in December, China’s refiners are scrambling to find bbls and are asking the Chinese government for help. Due to this, Russia’s crude production is expected to decrease by ~1.1mm bbls/d. Russia has recently increased exports to Turkey, China and India, which are scheduled to end after the embargo is put into place. Turkey, China and India import as much as 2.2mmbbls/d from Russia.
The EIA Petroleum Status Report for the week ending November 11th, 2022 was released on Wednesday, production stayed the same as the previous week at 12.1mm bbls. At 435.4 bbls, crude storage is ~4% below the five year average for this time of year. Cushing storage dropped 1.6 million bbls to 25.6mm. Refinery run rates had another increase of 92.9% on the week, well above 74.5% run rates two years ago during the pandemic.
www.eia.gov/petroleum/supply/weekly
Rig Count Update:
The U.S. O&G rig count added 3 rigs on the week to 880 as the major basins combined for a net +14 (Non-core basins dropped several). The Permian again accounted for the largest gain at five (351 total) with the SCOOP+STACK adding four (47 total).
Natural Gas
With much of the country finally feeling the cold weather, Natural Gas prices have bounced above $6 for most of the week. The cold weather, originally thought to be short lived, looks to stick around for a bit, at least for the northeast, as a substantial snowstorm is blanketing the region. With uncertainty around the Freeport TX LNG facility reopening, and the outage likely extending into 2023, storage levels could remain higher than previously forecasted. Europe remains unsettled as a stray missile hit Poland this week. Look for this continued uncertainty to keep prices on the violate path. While price upside remains possible during December, it could strongly depend on whether mother nature decides to bring on the winter blast.
Midcontinent prices started the week strong as below-normal temps pushed demand to 25 Bcf/d, 11 Bcf/d higher than the previous seven days, according to S&P Global Commodity Insights. With temps reaching 14 degrees below normal, the cooler weather looks to stick throughout the weekend. Texas Eastern Transmission lifted its force majeure on line 73 after being at zero capacity for nearly two weeks. Flows to the Midwest saw a strong bump with Nexus resuming flow on their portion of the leased line. Chicago city-gates comes in at a $.03 discount to Henry Hub, while ANR-OK is $.20 off at $5.54 and NGPL-Midcon is $.51 back at $5.23.
The EIA released storage numbers this morning, coming in at 3,644 Bcf, representing a net +64 Bcf increase from the previous week. This increase was slightly above marketplace expectations of +63. Stocks were 4 Bcf less this time last year, however, this week’s levels are still within the 5 yr. historical range of 3,651 Bcf.
Natural Gas Liquids (NGLs)
Not too much movement with spot prices in Mont Belvieu and Conway compared to last week, the largest swing was a 6% drop in Conway Isobutanes, followed by a 4% drop in MB N. Gasolines. All others stayed with a few percentages either way, with MB purity Ethane being the lone product to show an increase (1%). All products as a percentage of WTI increased, as crude has fallen on the week to the low $80 range.
ANCOVA DISCLAIMER: The opinions expressed in this report are based on information which Ancova believes is reliable; however, Ancova does not represent or warrant its accuracy. These opinions represent the views of Ancova as of the date of this report. These opinions may be subject to change without notice and Ancova will not be responsible for any consequences associated with reliance on any statement or opinion contained in this report. This report should not be considered as an offer or solicitation to buy or sell any securities.