January 2, 2022

The last several years have been tough in the downturn and have made the survivors stronger. We have talked about the ESG and fiscal responsibilities of the E&P companies in the United States changing for the better. The survivors are listening to their investors and market data. Myself included. 

Budgets and business plans rely on good data, and great people to implement the data-based plans. To look at the 2022 business plan for King Operating, we must check our 2021 performance vs. predictions. Our performance was on track and set up the King Operating Corporation for an outstanding 2022. Our operations team had tough goals and increased production all along the way even with tough obstacles thrown at them. 

Our financial team looked at world geopolitical issues, supply, demand, energy policies, and many indices that are sometimes overlooked by some in the industry. In 2021 there have been several key data points that resonate. 

  • The world needs over half a trillion dollars invested in E&P activities just to keep up with normal depletion curves. This is a direct result of the investors asking for returns in a quarter rather than years. Texaco is only one of the examples in Q4 with a $6 billion in profit with a $10 billion stock buy-back program. That money is not going into new drilling. 
  • Demand is going to increase. The pandemic is still an issue, but the numbers are showing that the world’s demand for oil is back to pre-pandemic levels. The world is on track to be above 100 million barrels per day.

Daily demand for crude oil worldwide from 2006 to 2020, with a forecast until 2026

  • World Production abilities in the major oil-producing countries are in question. One of the jokes in the industry is “Show me a reserve report from Saudi Arabia”. No one knows what their actual reserves are, and how easy they are brought to market. Russia has not increased oil production last month and has now raised some eyebrows, as they may not be able to increase their oil production as they say.

As energy prices across the globe rise, many observers and pundits continue to downplay the possibility of a global energy supply crisis, often citing OPEC+ spare capacity as the panacea. The perception that OPEC+ is flush with spare capacity is pervasive.  But due to a lack of reliable data and no formal reporting or verification requirements, many industry experts and analytics firms have adopted OPEC+’s self-reported numbers. No one knows exactly how much spare production capacity OPEC+ really has, and few seem interested, despite the potential implications.” -Josh Young, CIO of Bison Interests.

  • The Drilled But Uncompleted Wells (DUC) is declining as these are the low-cost wells to be drilled and will have a major impact on new well drilling in 2022. The cost for drilling wells will be going up, and subsequently the price for oil. See the chart below from the EIA.

2021 Duc numbers EIA-ENB

DUC Wells Decline in the United States in 2021

  • Yesterday Reuters picked up one of our King Operating Research team’s threads on the major changes in the renewable market reclassification of natural gas and nuclear as “renewables”. This new messaging strategy from the “Greener” group as I call them, will allow natural gas back to the center stage and have a substantial impact on the investment dollars available for drilling. The Infrastructure Bill and the COP26 both made the stealth announcement and are now being rolled out as normal talking points. This will start impacting the capital available for drilling later in 2022. ESG investors and funds will get the green (pun) light to invest in natural gas production projects. 

The Bottom Line

“Data, decisions, and performance matter. Making your decisions based upon data helps your team perform and execute your plans.”  – Jay R. Young, CEO, King Operating Corporation. 

The King Operating Corporation Team had a good year in performance and did a fantastic job with preparation to exceed all expectations for 2022 performance. We made decisions last year with data, and that data is holding true for our financial modeling. The King Operating I, LP fund is about to close and our return to our investors is right on track to perform as projected. As we have new projects, new funds, and new investors on the horizon, our 2022 is looking like it will be exceptionally profitable for our investors. 

Our data is showing that oil and gas prices are going up, and to what level has a lot of variables. For Q1 of 2022, we will be above $90 and on the way to above $100 in Q2. We will have other reports coming out with supporting data. 

Stay tuned for new updates through our regular investor information programs, and please reach out to our team at any time. 

Jay R. Young, CEO, King Operating

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