A Chance to Prepare for the Future: The Beacon, 05/18/2020

Last week, the forward energy market dropped materially on the front end, pushing all the annual strips back below the $2.50 mark. The 12-month strip has the best price point, with the rest of the annual strips basically tied for second-best -- clustered in a 4 cent range between $2.448 and $2.488. North American drilling rigs in the field are down sharply for a 9th straight week -- down another 38 rigs this week, with the US rig count down 35 and the Canadian count down 3. That marks a 605 rig decrease in the last 9 weeks - a 62.6% decrease from the pre-pandemic/oil price collapse numbers. The EIA reported a natural gas storage injection of 103 bcf -- just below the middle of the range of expectations, right on last year's build of 100 bcf, and above the 5-year average injection of 85 bcf. Storage levels are relatively strong -- moving closer to the 5-year max, and 20.6% above the climbing 5-year average. This week's weather map is showing warmer than normal temps for the eastern 2/3 of the country, with cooler than normal temps expected for the West. The first named storm of hurricane season (which doesn't officially begin until June 1) is off the East Coast, but is not forecasted to impact Gulf production. The 2020 hurricane season is expected to be more active than normal, and poses some price volatility risk for the remainder of the year. Current price levels are still roughly where they were in Q4 2019, and longer-term contracts are priced very attractively. Keep working to lock in prices for as much term as possible, and give serious thought to on-site efficiency and generation projects to take price risk off the table.

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