for the second week in a row, the number of rigs actively drilling for oil and natural gas in the U.S.fell by more than 5%, as Baker Hughes reported the rig count on February 6th was at 1456, down by 87 rigs from January 30th, with oil rigs down 83 to 1140, gas rigs down 5 to 314, and miscellaneous rigs up by 1 to 2...the 1456 rigs running this week represented the slowest drilling activity since December 2011, with the count of land based rigs falling by 85 to 1397, rigs working on inland waters falling by 3 to 9, while one platform was added offshore, to bring the offshore rig total to 50...the count of horizontal well drilling rigs was down by 80 to 1088, the number of directional rigs fell by 5 to 135, and the count of vertical rigs fell by 2 to 233...this left the US rig count down 315 rigs from last February 6th's 1771, with oil rigs down 276, gas rigs down 37, and miscellaneous rigs down 2..
nearly half the rigs that were shut down this week had been operating in Texas, as that state’s active rig count fell by 41 to 654, with a drop of 37 rigs working in the Permian basin on the west Texas border, where 9 rigs were also cut on the New Mexico side...rigs in the Bakken in North Dakota fell by 11 to 132, while Colorado ended the week with 55 rigs, 8 rigs less than last week, and the count in Oklahoma fell 7 to 176...the rig count in Kansas was down 4 to 18, and West Virginia also saw 4 fewer rigs in operation at 19...in addition, 2 rigs were pulled from the Utica shale in Ohio, leaving 39, and 2 rigs were taken out of service in Utah, which finished the week with 12 rigs running....meanwhile, Louisiana was down one rig at 107, while the rig counts in Alaska at 10, Arkansas at 12, California at 16, Pennsylvania at 54 and Wyoming at 42 were unchanged for this past week...
Canadian oil & gas operations also saw a reduction in drilling activity, as their total rig count fell by 13 to 381, with Canadian oil rigs down by 16 to 184, while their gas rig count rose by 3 to 197..for the year, the Canadian rig count is down 240 rigs from 621 on last February 6th, with their oil rigs down 225, and their gas rigs down 15...
Baker Hughes also released international rig counts for January 2015, which showed 1,258 gas & oil rigs operating outside of the US and Canada, which was down 55 from the international count of 1,313 in December, and down 67 from the 1,325 count of January a year ago...the count of rigs operating offshore internationally was at 314, down 24 from 338 in December, and up 12 from 302 in January 2014...interestingly, the active rig count fell in every area worldwide except in the Middle East, where 12 rigs were added, to bring the Persian Gulf area rig count up to 415...that they've added rigs in January at a time when prices were below $50 and dropping is indicative of OPEC's intention to carry out this price war to the end, until such time as inefficient tar sands and horizontal shale operators are driven out of business...
US oil prices were volatile all week, with each day seeing intraday price movement of over $2 a barrel , and with wholesale gasoline prices moving in tandem, it resulted in prices at the pump jumping as much as 20 cents a gallon overnight in some parts of the country...contracts for WTI oil opened on Monday at $47.34 a barrel and rose to near $50 before closing at $48.51, in a continuation of the rally brought on by the record low rig count last week, which led traders to believe that oil production would soon be curtailed, bringing oil supplies back into balance with demand and hence stabilizing the price...that impetus carried into Tuesday, when prices rose to as high as $54.17 before closing at $52.84...on Wednesday, however, a report showed a massive 6.3 million barrel increase in US crude oil inventories, and prices fell back to $48 before closing at $48.62..oil then traded as low as $47.40 on Thursday morning before the price rise resumed, and then oil traded even higher after the strong jobs report on Friday to close the week up nearly 10% at $52.14...
natural gas prices, on the other hand, continued to drop this week despite below normal temperatures and temperature forecasts for the densely populated eastern half of the country...after closing last week at $2.69 per mmBTU, the lowest contract price in three years, prices were relatively unchanged on Monday and then rose by 7 cents on Tuesday to this week's high at $2.75 mmBTU...gas prices then fell every day for the rest of the week, falling to $2.66 on Wednesday, $2.60 on Thursday, and to another new three year low of $2.579 mmBTU on Friday...
to put this week's price changes into a longer term perspective, we'll include the 6 month graphs of the near term contract prices for WTI oil, the US price benchmark, and for gas at the Henry Hub in Louisiana…you can see that despite the big jump in oil prices this week, they’re still well below the $75 a barrel range that preceded the OPEC Thanksgiving meeting, and less than half the $107 a barrel price oil saw in June of this year… and recall that according to Bloomberg New Energy Finance, $50 oil is below the average break-even price for wells in 37 of 38 U.S. shale oilfields...(see also FACTBOX-Breakeven oil prices for U.S. shale: analyst estimates, from Reuters)
crude oil prices 2/7/15:
the average breakeven price for natural gas wells in the Marcellus, on the other hand, is estimated to be between $4 and $5 per mcf (thousand cubic feet, about the same as a mmBTU - million BTU)…clearly, natural gas prices have been below that average breakeven price since December, but gas drillers weren’t even very profitable before then…prior to the fracking boom, natural gas prices ranged between $6 and $14 per mmBTU, but they’ve remained under $6 mmBTU since…
natural gas prices 2/7/15:
this week saw the first quarterly financial reports from most of the major oil and gas companies since the post Thanksgiving collapse of oil prices, and while most of the media coverage focused on corporate earnings and dividends, most of the reports also included corporate outlook and investment plans going forward...hence, by checking out each of these reports that we've come across, we should be able to get a sense of how much the lower prices will curtail oil & gas drilling operations in the coming months...
Shell Oil, who reported last week, was the first company to release figures, announced that it was cutting its capital expenditures by $15 billion over the next three years; that would represent a reduction of 14% from their 2014 level of spending for exploration and exploitation, and as a result they will defer or cancel about 40 projects worldwide...they had already announced a pullback from the tarsands involving 300 job cuts; in addition, they'll be undertaking the oil patch version of beating swords into plowshares, as they will begin dismantling their giant rigs in the North Sea’s Brent oilfield, lifting the first 23,500 ton steel superstructure that stands above the water onto a giant ship for transportation to the northeast coast of England, where it will be scrapped and recycled into washing machine parts...
also last week, ConocoPhillips , the largest domesttic independent oil and gas company, reported a quarterly loss and announced another 15% cut to its 2015 capital spending plans, on top of the 20% spending cuts that they'd announced earlier...while they'll continue with new projects in Canada, Europe, and Malaysia, they'll be deferring onshore drilling and exploration programs in the US, reiterating their intention “to significantly reduce their unconventional exploration” programs in new areas of US shale...
Occidental Petroleum also reported a large loss of $3.4 billion in the 4th quarter and announced that they'd be cutting their 2015 exploration and exploitation budget by $5.8 billion, a 33 percent decrease from 2014..although their quarterly report bragged about their increased production from shale, notably in the Permain basin, on Wednesday they told North Dakota officials that they'd be suspending fracking in the Bakken at least until March...
BP was also among the companies reporting further cuts, as they revised their previous guidance and reduced their expected capital outlays from $25 billion in 2015 to the $20 billion they'll now allocate...they had already taken a $1 billion charge to pay for restructuring, including thousands of jobs cuts in their worldwide operations...like Shell, they'll also be decommissioning drilling platforms in the North Sea, as well as in Angola..
while vertically integrated Exxon did not take as large a hit to profits as the other major oil companies, they are also taking steps to reduce spending as they do not expect crude prices to rise significantly from current levels..although they ran more rigs in the 4th quarter than previously, they're protected from lower prices because their large base of refinery and petrochemical operations actually benefit from lower crude prices..
that's the opposite of the situation that Anadarko Petroleum, whose business is exclusively oil and gas exploration, finds itself in...they also reported a loss in the 4th quarter, and indicate that they'll be slashing spending in 2015, with exact details to be released March 3rd...with total capital expenditures last year at $9.26 billion, analysts expect Anadarko's 2015 budget to be around $6.5 billion...
other oil & gas companies that have announced capital spending plans include Hess Corporation, who announced a 2015 exploration budget of $4.7 billion, down 16% from their 2014 spending of $5.6 billion; Continental Resources, who have announced two cuts from last year's outlays of $5.2 billion, first to $4.6 billion, then to $2.7 billion; Freeport-McMoRan, who will cut capital spending for its petroleum business by more than one-third and who will now attempt to secure third-party funding “for a significant portion of its oil and gas capital expenditures” after reporting a a $2.9 billion 4th quarter loss, Valero Energy, who'll cut cap to $2.65 billion in 2015 and $2.4 billion in 2016, from $2.8 billion in 2014, Sanchez Energy Corp, who will cut their 2015 capital budget by 60 percent, and Penn West Petroleum, who've lowered capital spending plans by 26%…
these cuts follow the much more severe cuts by the oil field service companies which had been announced earlier; you may recall that less than a month ago, Schlumberger, the world’s largest oilfield-services company, announced that they would cut 9,000 jobs; a week after that, Baker Hughes, who also supplies drilling equipment, announced their own cut of 7,000 jobs...without specifying how many jobs would be cut, Halliburton suggested significant jobs cuts in North America after earlier restructuring their Asian operations while laying off 1,000 overseas...then the major contract driller Helmerich and Payne announced at the end of January that they'd be cutting 2000 oil field jobs, citing low oil prices due to oversupply and sluggish demand, while this week the oil services company Weatherford International announced plans to cut 5,000 jobs, or about 9 percent of its worldwide workforce, by the end of March, mostly in the Western hemisphere......
however, the January jobs report that was released by the Bureau of Labor Statistics on Friday showed that seasonally adjusted jobs in oil and gas extraction just fell by just 1,900, with the loss of another 1,400 positions in support activities, which could be in jobs such as tanker truck drivers who haul frack water, or similar ancillary jobs...the actual job drop was a few thousand more, but the labor department considers the loss of that many jobs to be normal for this time of year, and adjusts the total reported accordingly...these relatively small oilfield job losses led some to question the Labor Department's data...but as is usually the case in such a situation, there is a relatively simple explanation; the monthly jobs reports are based on surveys conducted during the week of the 12th, and the layoff announcements didn't come until after that...we should see evidence of these cuts in the February jobs report..
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Ohio Gov. John Kasich is proposing a big increase in taxes paid by oil and gas drillers - Gov. John Kasich has proposed a big increase in taxes paid by oil and gas producers, a number that is likely to again incite trade groups representing the industry operating in eastern Ohio. The severance tax is intended in part to offset the $500 million in tax cuts Kasich offered in his two-year budget Monday. A $1-per-pack tax increase on cigarettes and an increased sales tax are also proposed. Kasich wants a 6.5 percent tax on oil and gas, a significant increase from the 2.5 percent the Ohio House passed in May but faltered in the Senate. Natural gas liquids, of which Ohio's Utica shale is particularly known for, would be taxed at 4.5 percent to counter the extra costs involved in separating liquids like ethane and butane. Kasich has been open about what he sees as the need for a higher tax on the industry, which, buoyed by hydraulic fracturing and horizontal drilling brings direct and indirect jobs into an area of the state with few of either. But fracking also causes substantial impacts on roads, water and other municipal matters in communities with typically sparse populations. Harrison County, for example, has seen a huge impact in sales tax receipts since the drilling boom came to county, but "it still isn't enough," a county official told me. Local governments in eastern Ohio have long talked about the need for a set percentage of the severance tax to go to their coffers, and Kasich's proposal would set aside 20 percent of the tax to local governments. Ohio's current rate isn't based on percentages; its 20 cents per barrel on oil and 3 cents per thousand cubic feet of natural gas.
Ohio could see an increase in severance tax, thanks to the Gov. -- Many expect Governor Tom Wolf to propose a severance tax on natural gas after he releases his first budget next month, but Wolf isn’t the only one considering a severance tax. Ohio Governor John Kasich has hopped on the tax train and has announced he will push for an increase on the state’s severance tax. As part of Kasich’s state proposed two-year budget, he plans to seek an increase in Ohio’s severance tax, which is something he has been trying to push through the Legislature. In his recent proposal, Kasich said he would increase the tax for unconventional wells, bringing it to 6.5 percent on oil and gas production, and would charge 4.5 percent per thousand cubic feet on gas and natural gas liquids carried through processing plants. Currently, Ohio’s severance tax sits at 3 cents per thousand cubic feet of natural gas and 20 cents per barrel of oil. Oil and gas production in Ohio is mostly located on the eastern side of the state, above the Utica shale formation, which produces oil and gas. Select gas companies that are operating in the region now are beginning to tap the shale fields along with their oil and gas operations. According to the industry and Lou D’Amico, president and executive director of the Pennsylvania Independent Oil & Gas Association, a severance tax on the oil and gas industry in Pennsylvania and Ohio, on top of the impact fee, could make shale fields less profitable to develop and potentially push drillers to other areas of the U.S.
State must account for oil decline - - Crain's Cleveland Business: The recent decline in global oil prices benefits Ohio drivers and will continue to do so for the near future. However, the governor and state legislators need to now acknowledge how dependency on tax revenue derived from oil production leaves the state of Ohio susceptible to international political and economic forces that it cannot control. Any budget dependent on a severance tax on “fracking” will be vulnerable to the capricious, if not whimsical, vagaries of the global oil market. If “fracking” is to alter the fiscal landscape of Ohio, politicians need to understand that the revenue stream is neither constant nor guaranteed. Pooling severance tax revenue in a trust fund creates a revenue stream that will serve the residents of Ohio long after the shale is depleted of the black gold many have come to see as salvation. Global oil prices are in decline for many reasons, none of which anyone in Columbus affects. The effect of a surging U.S. dollar reduces the price of oil, which is priced in dollars. When the dollar appreciates, U.S. dollars buy more foreign goods. The most notable import is oil. So while Americans are enjoying the benefits of cheaper oil and gasoline, the rest of the world is paying more. There are many explanations for the improving dollar, but all that matters here is that no one in Columbus is able to affect global currency markets.
Proposed Oil And Gas Tax Hike Gets Support From Unlikely Source » WOSU News: House leaders are looking over Gov. John Kasich’s budget proposal, which includes a proposed tax increase on oil and gas drilling. And the governor is getting some support from an unlikely source. “They understand the business community—they understand the value of the product and they also understand the needs in eastern Ohio,” That’s a rare statement from Wendy Patton of Policy Matters Ohio about Gov. John Kasich’s plans to hike the tax on oil and natural gas drillers. In fact—Policy Matters has not been encouraged by any of his severance tax proposals—until now. The severance tax is a tax on oil and gas extracted from Ohio’s shale using hydraulic fracturing—also known as fracking. Patton says Kasich’s scheme to raise the tax to 6.5% is—as she describes—a “self-respecting” rate. “He recognizes the value of the commodity that we have just as industry is recognizing that value and he is proposing a severance tax rate that is within the range of those of major producing states,” said Patton. The governor’s office projects this would generate about $325 million in the next two fiscal years. The 6.5% number is pretty extreme compared to proposed rates in the past. Last year the governor’s office was looking for a 2.75% tax. The House passed its own tax increase of only 2.5%—and it died in the Senate.
Fracking waste water topic of meetings in Trumbull County – Property owners in Trumbull County will have an opportunity to voice their concerns and ask questions about the oil and gas drilling that is taking place across the area. Meetings are scheduled for Wednesday and Thursday at the county administration building on High Street. The Wednesday meeting begins at 11 a.m. and Thursday’s meeting is set for 6 p.m. Topics discussed will include updates on the oil and gas industry, local injection wells and how they’re regulated. Trumbull County has 17 wells. The concern is that the area is becoming a dumping ground for waste generated in other states and that the water supply is in jeopardy. According to the Ohio Department of Natural Resources, Trumbull County leads the state in accepting waste to be injected into their wells. About 2.3 million barrels were dumped in 2013 and 16 million in the first three quarters of 2014. Almost half of that came from Pennsylvania.
Trumbull County has most injection wells in Ohio - WYTV.com: – Growing concerns over the number of brine injection wells in Trumbull County sparked a community meeting in Warren on Wednesday. It was a packed house in the Commissioners hearing room for the first of two public meetings on oil and gas drilling, which were organized by the Trumbull County Engineer’s Office. “What we could do to protect the roads. That is our job, to protect the roads and bridges, but then again, we are getting a lot of water from out of state,” said Jack Simon, RUMA coordinator for the Trumbull County Engineer’s Office. Trumbull County has the most injection wells in the state, with 17. That is more than the entire state of Pennsylvania. According to the Ohio Department of Natural Resources, Trumbull County leads the state in accepting waste to be injected into their wells. About 2.3 million barrels were dumped in 2013 and 16 million in the first three quarters of 2014. Almost half of that came from Pennsylvania, the ODNR said. According to a presentation given at Wednesday’s meeting, Class II disposal wells are used to inject brine, associated with the extraction of oil and natural gas, deep underground. More than 144,000 Class II wells are in operation in the United States and inject more than 2 billion gallons of brine every day. A lawyer familiar with oil and gas law, Atty. Thomas Carey, spoke about homeowners’ rights. Valid objections are the only thing looked at by the Ohio Department of Natural Resources when they issue a permit and most refusals are done for safety issues.
Fracking byproduct de-icing roads, but is it safe?: Fracking has been a controversial topic in recent years since it began to be used on a wide-spread scale. But now the byproduct of the drilling process is being used by the Ohio Department of Transportation to help clear roads in Summit County. From the fracking field to our roads, a new product called AquaSalina has been added to the arsenal of weapons ODOT uses against the snow and ice. "We heard good things from other communities that are using it," said ODOT spokesman Brent Kovacs. In hydraulic fracturing, better known as fracking, water, chemicals and sand get forced more than a mile down to break up rock and get at oil and natural gas. That watery mixture is left behind. "They filter it, get all of the stuff that we don't want on the roads out of it, and then they sell it to us," Kovacs explained. The byproduct is used to wet salt before it hits the highway. Unlike other additives, not everyone likes it. "Just not a big fan of it. Obviously I think it impacts the environment in ways that we don't even know yet," said motorist Nick Betro. How does AquaSalina compare to the other alternatives? Brine is cheap, about 5 cents a gallon. But it only works at warmer road temperatures. AquaSalina is about 50 cents a gallon but it's more effective. Liquid calcium costs about $1.10 a gallon. Beet Heet is $1.50 a gallon. "They are doing the test to a T, and they are testing everything out in every aspect of the way, and I completely trust what they are doing," said motorist Dominique Felice.
Texas fracking company reportedly exiting Utica shale play, closing Cambridge office -- GoFrac LLC, a fracking business working the Utica shale play, is closing in Ohio. A few years ago the Texas company bought 90 acres in Guernsey County and opened an operation in Cambridge, its only one in Ohio. It made significant investments, including rail spurs and silos, Norm Blanchard, executive director of the Community Improvement Corporation in Cambridge, told me, and it once indicated it could hire as many as 250 people. But eastern Ohio's Utica shale play, like other energy spots across the country, is struggling amid a downturn in oil prices. And now, GoFrac has told the local Ohio Means Jobs office this week it's closing, Blanchard said. "The sad part is we thought they were the most solid, we'd never lose them," Blanchard said, because of the amount of investment the company had made. GoFrac was formed in Fort Worth, Texas, in 2011 and counted more than 600 employees in Texas and Ohio as of last November. It uses hydraulic fracturing to service oil and gas companies, using water, gel and acid to crack underground shale rock to release fossil fuels to the surface. GoFrac had appointed a new CFO and COO in recent months. Calls made to the company's Cambridge and corporate offices were not answered and messages weren't returned. It's unknown how many jobs would be affected, but government officials intend to extend help to employees.
Company wins federal approval to ship liquid drilling wastes by barge on Ohio River - A $3 million plan by a Texas company to ship liquid drilling wastes via barges on the Ohio River is gaining steam. GreenHunter Resources said the U.S. Coast Guard quietly approved its proposal in the fourth quarter of 2014. No announcement was made at the time. A new barge terminal at Portland, in Meigs County in southern Ohio, will be completed in the next six to nine months to handle the shipments, company officials said. When complete, the Mills Hunter Facility complex will double the facility’s injection capacity — from 14,500 barrels per day to about 30,000 barrels (42-gallons each) — for drilling liquids from the Utica and Marcellus shales in Ohio, West Virginia and Pennsylvania. Based on those numbers, Mills Hunter would handle and inject about 7.8 million barrels of waste per year, making it the No. 1 injection site in Ohio by far. That total would represent about 50 percent of the injection volume handled annually at Ohio’s 201 injection wells. Mills Hunter currently operates two injection wells that take drilling wastes delivered by truck. Four additional injection wells should be operating by March 31. The company also intends to spend an additional $2.5 million to $3 million to expand or to develop new waste shipping terminals at New Matamoras in Ohio’s Washington County and Wheeling, W.Va. Critics of the barge proposal submitted more than 60,000 comments, many citing the threat that such shipments posed to the Ohio River, which many communities use for drinking water.
Group unhappy with federal approval of Ohio River barge shipments - Drilling - Ohio: “Despite the thousands of comments from residents along the Ohio River opposing the risk of allowing toxic, radioactive fracking waste to be barged along the Ohio River, the Coast Guard quietly approved the plan at the end of 2014. “In addition to the risk of spills on the Ohio river, a drinking water source for millions, Ohio is also on pace to reach one billion gallons of fracking waste injected in 2015. Why would Ohio bear the public health and environmental risks, especially when the cost to administer the underground injection of this waste exceeds any income from importing it? This decision is financially irresponsible and opens up Ohio to be solidified as the regional dumping ground for the oil and gas industry’s dirty leftovers. “The Coast Guard is risking man-made earthquakes, drinking water contamination, leaks and spills. This approval compromises not only the health and safety of the millions who get their drinking water from the Ohio River but will increase the amount of toxic fracking waste that will be injected underground in Southeast Ohio.”
Large pipelines proposed to carry gas from shale formations - The growing supply of natural gas being pulled from the Marcellus and Utica shale regions of Ohio, West Virginia and Pennsylvania has become a potential boon for businesses that build large interstate pipelines and a potential nightmare for people who don't want massive amounts of gas surging through their property.Several underground pipeline projects are proposed to transport natural gas across the state from the Utica and Marcellus shale regions to northwest Ohio.The project that has drawn the most opposition is the NEXUS pipeline, which is being proposed by a partnership of Houston-based Spectra Energy and Detroit-based DTE Energy. NEXUS is a 200-mile corridor of 42-inch-diamater pipe capable of transporting as much as 2 billion cubic feet of gas per day, an amount that would meet the needs of around 20,000 homes for a year. Gas from the pipeline would be made available to industry and to gas-fired power plants.The other large proposed project is called ET Rover and consists of two similarly sized, side-by-said pipelines. Yet it's NEXUS that has drawn the most criticism because of its proximity to more densely populated areas including Stark, Summit, Medina and Lorain counties. The ET Rover pipeline would be built farther south and would mostly avoid populated areas.Drilling for oil and especially natural gas has become a major driver of economic activity in southeast Ohio's traditionally poor Appalachian region. Production, however, has outstripped the ability to get that gas to market, a problem the pipelines would help solve.While the drilling process called hydraulic fracturing — fracking — has turned some landowners into millionaires in the shale region, pipeline companies are not expected to make those who own land along their routes rich. Property owners instead are concerned their property values will be diminished, that they will lose the ability to use their land as they wish and are frightened by the possibility of ruptures and explosions.
A look at proposed natural gas pipeline projects in Ohio - Natural gas producers in the Utica and Marcellus shale regions need pipelines to carry natural gas to market. Here is a quick look at four proposed projects that would run through Ohio:
- ET ROVER
- Ohio length: 208 miles
- Capacity: 3.25 billion cubic feet per day
- Estimated cost: $4.3 billion
- Route details: Twin 42-inch lines northeast from Cadiz to Defiance
- NEXUS
- Ohio length: 200 miles
- Capacity: 2 billion cubic feet per day
- Estimated Cost: $2 billion
- Route details: Single 42-inch line northeast from Kensington to the Michigan border
- LEACH XPRESS
- Ohio length: 125 miles
- Capacity: 1.5 billion cubic feet per day
- Estimated Cost: $1.75 billion
- Route details: Single 36-inch pipeline from Monroe County west to Lancaster and south into Vinton County
- ANR EAST
- Ohio length: 235 miles
- Capacity: 2 billion cubic feet per day
- Estimated Cost: $3 billion
- Route details Single 42-inch line northeast from Cadiz to the Indiana border
you missed at least two: the Atlantic Coast Pipeline, another 42 inch project covering 550 miles, crossing the Blue Ridge Mountains to deliver gas to Virginia from Pennsylvania, Ohio and West Virginia, and the Mariner West and Allegheny Access project, which is a Pennsylvania to Michigan Sunoco Logistics pipeline through Mahoning, Portage & Summit counties, to Findlay and Toledo
Over the past five years, the Ohio Valley has seen at least 21 drilling or pipeline-related accidents - – From an explosion at a Marshall County well site in June 2010 to the Jan. 26 pipeline blast in Brooke County , 21 confirmed accidents related to the Upper Ohio Valley ‘s Marcellus and Utica shale industry have disrupted the lives of area residents, caused damage to the environment and, on at least two occasions, led to the loss of life. These accidents do not count citations drillers, pipeliners, or their subcontractors received for unauthorized stream fillings, traffic violations or criminal activity. They also do not count the numerous complaints by residents regarding air and noise pollution, or spills from trucks. While billions of dollars has flowed into the area from the drilling boom, it’s not been without its downside. Here is a brief recap of accidents in the gas fields.
Ohio pipeline manufacturer is temporarily closing its doors - Vallourec Star, an Ohio manufacturer that is closely bound to the oil and gas industry, announced it will be shutting down operations for three weeks and offering a six month voluntary layoff to its workers. In mid-February, Vallourec’s Youngstown plant will be discontinuing operations, which will affect 700 employees. Vallourec has already adjusted production schedules, lowered prices with suppliers and used fewer contractors to deal with the downturn in the oil and gas exploration industry. The company said in a statement it is at a point where some employees will be affected by the temporary closing, and unfortunately it cannot be prevented. Employees at the Youngstown plant will be able to file for unemployment benefits and use their paid time off to earn a paycheck during the closing. Workers will continue to have health care coverage, and if they accept the six month layoff coverage will continue uninterrupted.
Marcellus horizontal well activity - Compared to the week of January 17th, not much has changed regarding activity and operations in the Marcellus Shale. However, one company’s CEO thinks the Marcellus and Utica shale regions are the best of the best, and that means prospective growth in the face of widespread cutbacks across the industry. EnLink Midstream Partners CEO Barry Davis shared with conference attendees at the Hart Energy Marcellus-Utica Midstream Conference that he believes the two shale regions are in prime positions for growth. Davis explained how EnLink Midstream is expecting a 50 percent nationwide decline in shale operations, but the reductions will allow activity to focus on top shale plays out there. Forty-four horizontal permits were issued during the week that ended Jan. 31st, and twenty-nine wells were drilled in the Marcellus Shale. The following information is provided by the Ohio Department of Natural Resource for the week of January 31st
DRILLED-16 DRILLING-1 PERMITTED-15 PRODUCING-12 TOTAL-44
Forty-four horizontal permits were issued during the week that ended Jan. 31st, and twenty-nine wells were drilled in the Marcellus Shale.
Utica well activity | marcellus.com: Utica drilling has leveled off, operations are continuing and production is still on the rise. However, a major issue lately has been what to do with all the natural gas being produced in the region. Several pipelines are in the works and they are causing issues among property owners, especially the NEXUS pipeline. The NEXUS pipeline, proposed by Spectra Energy and DTE Energy, is 200 miles long and 42 inches in diameter. The pipeline would be capable of transporting up to 2 billion cubic feet of natural gas per day and supply an estimated 20,000 homes with gas per year. Gas from the pipeline would also be available to industry and natural gas-fueled power plants. The issue the pipeline is causing revolves around its proposed path. Several property owners in Stark, Summit, Medina and Lorain counties in Ohio are enraged that the pipeline would be located in such a densely populated area, but also run directly through their properties. NEXUS spokesman Arthur Diestel stated that because of the controversy over the proposed path of the pipeline, an alternative route will be considered. The following information is provided by the Ohio Department of Natural Resources and is for the week of January 24th:
DRILLED-314 DRILLING-284 PERMITTED-457 PRODUCING-726 TOTAL-1781
Eight horizontal permits were issued during the week that ended Jan. 24 and 48 rigs were operating in the Utica Shale. Top 10 counties by numbed of permits:
The Fault Line: Ohio quakes offer lessons for Texas: — A few decades ago, Youngstown, Ohio pulsed to the beat of the steel industry. The banks of the Mahoning River were lined with mills. These days, Youngstown and northeastern Ohio occasionally shiver to the beat of the oil and gas industry. From earthquakes. What Ohio is experiencing may hold some lessons for Texas, because a growing number of studies and state regulators link the tremors to oil and gas waste disposal wells and hydraulic fracturing. The spike in public consciousness over oil and gas and earthquakes happened in Youngstown on New Year's Eve 2011. "Bam," Lynn Anderson remembers. The cats that were sleeping on her shoulders that evening "launched." "Everybody ran out of their houses," she told News 8. The earthquakes were a rallying cry for opposition to oil and gas drilling for many in northeastern Ohio. The Northstar I well is now inactive, but "the battle for this well is not over until it is dismantled," Williams pledged. Dr. Ray Beiersdorfer, a geologist at Youngstown State University, traces 1,055 earthquakes — most of them less than magnitude 2 — to oil and gas activity in northeastern Ohio. He also is a consultant for Fracfree Mahoning Valley, a group that opposes hydraulic fracturing techniques to extract energy resources and injection wells to dispose of waste.
Pipelines remain big news - With the looming presidential veto of the Keystone XL Pipeline, which would transport gas 1,179 miles from Canada to the Gulf of Mexico, talk of jobs, energy independence and the environment has consumed hours of television airtime and barrels of ink and rolls of paper. In West Virginia, at least four natural gas transmission pipelines are being discussed for development, and talks — whether political or kitchen table — are mirroring the national dialogue: Those for and against them are speaking of jobs, energy independence and the environment. If green-lighted by the federal government, the multibillion-dollar transmission pipelines would criss-cross the central and southeastern part of the state, transporting natural gas drilled in West Virginia to destinations outside the state. Natural gas companies are promising millions to localities in tax revenue and hundreds of jobs to communities hard hit by the nearly moribund coal industry. Two transmission pipelines have held or are in the midst of holding public hearings, the beginning step — also a federal requirement — to construction. In mid-January, the U.S. Forest Service was seeking comments on whether to allow surveys for the proposed Atlantic Coast Pipeline on a 17.1-mile segment of the Monongahela National Forest in Pocahontas and Randolph counties.
Sunoco Logistics announces second, bigger natural gas liquids pipeline - Philadelphia-based Sunoco Logistics has announced a new $2.5 billion pipeline project to move natural gas liquids across the state. “Mariner East 2” would start in Ohio, bringing ethane and propane through West Virginia and western Pennsylvania to an industrial complex on the Delaware River. The 350-mile pipeline would run parallel to its predecessor, the Mariner East 1, but unlike that project,which involves reversing the flow of an existing line, this pipeline needs to be built from scratch. Spokesman Jeff Shields says it would quadruple the amount of natural gas liquids flowing to Marcus Hook from 70,000 barrels a day to 275,000. Much of the ethane will be shipped overseas and some of the propane will feed markets on the East Coast. Sunoco Logistics also announced plans for a propane manufacturing unit at the idled refinery in Marcus Hook. That facility will turn propane into propylene, a building block for plastics and fabrics. “That also enables a whole manufacturing chain that we think is really what people have been talking about when you’re talking about a manufacturing renaissance in Southeast Pennsylvania,” Shields said. That project is still in “active development” and there is no timeline for when the former oil refinery will start processing propane. Sunoco Logistics expects Mariner East 2 to come online in 2016, pending federal and state regulatory approvals.
Consol Energy posts $74M profit in fourth quarter - Consol Energy Inc. plans to trim capital spending on natural gas development but avoid the more drastic cuts other shale companies are announcing as it continues to ramp up production. The Cecil-based gas and coal company on Friday said it will spend about $1 billion on development in the Marcellus and Utica shales, a drop of 23 percent from the $1.3 billion it spent last year on that business segment. Competitors including Range Resources and Rex Energy have cut spending for this year by 40 percent as natural gas prices hit two-year lows, and Chevron is laying off up to 162 of its 700 workers in Appalachia. Consol can cut costs by drilling on existing well pads and seeking reductions from contractors while squeezing more gas from wells with better technology, company leaders and analysts said. It predicts a 30 percent increase in gas production this year and next. “We’d like to keep that activity level intact, so we’ll partner with the right service companies to keep that in place,” Chief Financial Officer David Khani told analysts while discussing the company’s fourth-quarter financial results. Money from the company’s coal mines, which can run without larger capital expenses because of improvement projects Consol finished last year, can help fund the drilling program.
Oil train cars derail in Philadelphia --A freight train carrying crude oil partially derailed in Philadelphia over the weekend. No injuries or spills were reported. It was the second oil train derailment the city has seen in the span of a year. As StateImpact Pennsylvania haspreviously reported, North Dakota’s Bakken Shale oil has helped breathe new life into Philadelphia’s refineries, but the city has also become one of the nation’s most heavily traveled regions for rail oil shipments. A string of recent accidents across the country has prompted calls for safety upgrades. The accident happened at about 3 a.m. Saturday at a CSX Corp. rail yard near 11th Street and Pattison Avenue, according to the Philadelphia Inquirer: A three-locomotive, 111-car CSX freight train was traveling from Chicago to the Philadelphia area when 11 tank cars containing crude oil came off the tracks, he said. The cars remained upright. Fire department hazmat crews responded to the scene “out of an abundance of caution” and left without taking any action, [CSX spokesman Rob Doolittle] said. No chemical leaks were detected, and no injuries reported, according to both CSX and the Philadelphia Fire Department.
Oil “Bomb Train” Derailment in Philadelphia Today -- Today the second major oil “bomb train” derailment occurred in Philadelphia, risking residents’ lives, endangering drivers on one of the nation’s busiest highways, I-95, and putting waterways at risk. One year and eleven days ago, early on Martin Luther King Day 2014, seven cars carrying Bakken Shale crude derailed over the Schuylkill River in Philadelphia in a “near miss from disaster.” That derailment put the entire University of Pennsylvania medical complex, the Schuylkill Expressway, the Veterans Administration, Children’s Hospital, and other major institutions at risk, along with a chunk of Philadelphia’s residential population too big to safely evacuate. Both accidents were predictable, preventable, and a near miss from potentially catastrophic impacts. There must be no third derailment. That no rupture occurred is extremely lucky. We can’t leave prevention to luck.
Opposition Greets Proposed Marcellus Shale-Trenton Pipeline - Local landowners have risen up – colorful anti-pipeline protest signs sprout from the roadsides of most communities along its route. Residents say they fear the pipeline will cause environmental harm, permanently scar the terrain, lower property values, and put their lives at risk. “The farmland is forever compromised,” said Charles Fisher, whose seventh-generation family farm would be diagonally crossed by the pipeline, along a right-of-way already occupied by a power line. “The pipeline is universally despised up here,” said Stephanie Jones, whose late parents, Donald and Beverly Jones, were local leaders in the conservation and preservation movement. The PennEast project is one of a proliferation of new or upgraded pipelines proposed to tap into the Marcellus gas boom. Business leaders in Philadelphia are organizing a pipeline to the city that they say would fuel a renaissance of energy-intensive manufacturing. Along each pipeline route, citizens groups have organized in opposition. They are unmoved by the pipeline companies’ arguments that they are delivering affordable, life-sustaining energy to millions of customers. Most towns on PennEast’s route in New Jersey are not now served by natural gas utilities. “Communities up and down the East Coast are waking up and saying, ‘This is a reality we don’t want any more,’ ” said Kristin McCarthy, a former member of the Delaware Township Council in Hunterdon County, who declined to run for reelection last year to devote herself to the pipeline fight.
Bill to monitor Marcellus Shale health effects reintroduced in state Senate - A bill aimed at creating an advisory panel to monitor potential public health effects of Marcellus Shale drilling has been reintroduced in the state Senate. Senate President Pro Tem Joe Scarnati (R- Jefferson) first proposed the measure in 2013. He reintroduced it on Friday. SB 375 would create a nine-member advisory panel that would meet at least twice a year to consult with experts to analyze the health effects of natural gas extraction.In 2011, former Gov. Tom Corbett’s Marcellus Shale Advisory Commission recommended that the state monitor public health impacts from drilling, however the legislature never allocated funding for it. Last June StateImpact Pennsylvania reported on allegations by two former state health workers who said they were instructed to ignore public complaints about drilling. In response, the Department of Health changed its Marcellus Shale policies. After New York State banned fracking in late 2014, citing health concerns, Governor Tom Wolf said he supports creating a registry for public health complaints.
In fracking hot spots, police and gas industry share intelligence on activists - Last month an anti-fracking group settled a lawsuit against Pennsylvania, after it was erroneously labeled a potential terrorist threat. The case dates back to 2010 and was an embarrassment for then-Governor Ed Rendell. But documents obtained by StateImpact Pennsylvania show law enforcement here and in other parts of the country continue to conduct surveillance on anti-fracking activists, leading some to claim their Constitutional rights are being violated. It’s not hard to tell Wendy Lee is an animal lover. With her cockatiel, Quantum, by her side, she showed me her blog. Lee is a 55-year-old philosophy professor at Bloomsburg University and proud anti-fracking activist.She often travels to gas industry sites and takes photos. Her website is filled with criticism of fracking, and she’s used to getting criticized for her views. Still, she was surprised last February when a Pennsylvania State Trooper came to her house to ask her about a visit she’d made to a gas compressor station. On that trip, she was joined by two other activists and took some photos of the compressor. It wasn’t long before security guards told them all to leave. “When they tell us to leave, we left,” she recalls. “There was no altercation. There was nothing.” As the trooper stood inside her door, he questioned her about the incident. After a while, he brought up eco-terrorism. Lee was stunned when he asked her if she knew anything about pipe bombs. “Part of me was like, ‘Oh this is scary. This is actually scary.’” she says. “And part of me is just laughing on the inside because it’s ludicrous.”
New Bill Would Gut Regulations On West Virginia’s Storage Tanks - West Virginia lawmakers introduced a bill Tuesday that would scale back regulations enacted last year on aboveground storage tanks, like the one that spilled last January and contaminated the water of 300,000 of the state’s residents. House Bill 2754 makes changes to the Aboveground Storage Tank Act, which was signed into law by Gov. Earl Ray Tomblin last April and requires storage tank owners to register their tanks so that the state could create an inventory, and also stipulated that these tanks to be inspected by the first of this year. Under the new bill, the number of tanks regulated by the act would shrink considerably, said Evan Hansen, president of West Virginia think tank Downstream Strategies. The bill exempts storage tanks that store oil or any other liquid associated with the oil or natural gas industry, and it also exempts tanks that hold less than 10,000 gallons. The Aboveground Storage Tank Act, as it’s written now, applies to the nearly 50,000 registered above-ground storage tanks in West Virginia. With the exemptions outlined in this new bill, fewer than 1,000 would be subject to the act, Hansen said. The drop is severe partly because, according to Downstream Strategies, the oil and gas industry is associated with about three-quarters of the state’s above-ground storage tanks, so exempting the industry from the act greatly reduces the number of tanks that will be subject to the act. That means that the bill, if it’s passed, could be considered a win for West Virginia’s oil and gas industry, which has been critical of the Storage Tank Act in the past. In August, James McKinney, president of the Independent Oil and Gas Association of West Virginia, said the act could “cause lost jobs” and “close businesses for us.” And last month, West Virginia Oil and Gas Association Executive Director Corky DeMarco also said he thought the bill went too far.
Alternative routes considered for W.Va.-Va. pipeline — Developers are considering alternative routes for a proposed pipeline that would carry deliver natural gas from West Virginia to Virginia. Mountain Valley Pipeline LLC spokeswoman Natalie Cox tells The Roanoke Times that the company wants to find a route that has the least overall impact on landowners, the environment and cultural resources. Cox says looking at alternative routes isn’t unusual in this early stage of seeking federal regulators’ approval of the project. She says possible routes in multiple counties are being evaluated. She declined to provide details. The 300-mile pipeline would run from Wetzel County, West Virginia, to another pipeline in Pittsylvania County, Virginia. The project is a joint venture between EQT Corp. and NextEra Energy Inc. It would deliver natural gas from the Marcellus and Utica shale deposits.
Feds Made “Incredible Error” Ignoring N.Y. Salt Cavern Collapse -- In the 1960s, a 400,000-ton block of rock fell from the roof of an old salt cavern in the Finger Lakes region of New York — a cavity that new owners now want to reopen and use to store highly pressurized natural gas. The Midwestern energy company that seeks a federal permit for the storage project has denied knowing the roof failure ever happened. And the Federal Energy Regulatory Commission (FERC), which is poised to rule on the company’s permit application, has never publicly acknowledged the event. But a Houston geologist hired by lawyers for opponents of the project characterized the omission by Arlington Storage Co. and FERC as “an incredible error” that heightens safety concerns about the project next to Seneca Lake, less than three miles from the Village of Watkins Glen, population 1,860. “Clearly, Arlington’s application and FERC’s conclusions are compromised by this error,” H.C. Clark wrote in a Jan. 15 letter that is now part of FERC’s public record in the case.The fallen chunk of rock — roughly four times as massive as the U.S.S. Nimitz supercarrier — now sits on the floor of the cavern, leaving an unsupported rock roof roughly the size of a football field. The roof collapse created an irregular cavity that may soon hold pressurized methane drawn from natural gas wells in nearby northern Pennsylvania. In the letter, Clark, who holds a Ph.D. in geophysics from Stanford and taught the subject for years at Rice University, analyzes a “400,000-ton fault block cavern roof failure” and rock faults surrounding the cavern. Clark draws on a series of long-suppressed reports written more than 50 years ago by a geologist for the company that then owned the cavern.
How to Salinate a Lake: Pressurize a Partially Collapsed Salt Cavern With Propane -- It’s that easy ! Sound like a plan ? Turn the nation’s cleanest fresh water lake into a brine pit. By forcing saline water out of a partially collapsed salt cavern – into the lake. Scientists discover that salty water (aka brine) in a partially collapsed salt cavern observes the laws of physics. When the brine is displaced by pressurized gas – liquid propane – it has to go somewhere else – like the lake next door. Imagine that. Peter Mantius gets the scoop: LPG Storage in Salt Cavern Linked to Salt Spike in Drinking Water For decades, scientists have puzzled over why Seneca Lake, the largest of New York State’s Finger Lakes, is by far the saltiest of the 11 glacier-carved water bodies.Now a Nevada hydrologist claims he’s solved the mystery. Tom Myers, who was hired by opponents of a plan to store liquid petroleum gas (LPG) in salt caverns at the southern end of Seneca, pins the blame on LPG storage in the same group of caverns between 1964 and 1984. “The risk of saline influx to the lake from LPG is very high and should be avoided,” Myers wrote in January.Formed as ice age glaciers retreated only 10,000 years ago, Seneca Lake was named for the westernmost Native American tribe in the Iroquois League. Running north and south, it is nearly 40 miles long and 1.5 miles wide. The state’s deepest lake, Seneca consistently holds 4.2 trillion gallons of water. That’s more than the current 3.6 trillion gallons behind the Hoover Dam in drought-plagued Lake Mead, America’s largest reservoir.
New York Banned Fracking, But 460,000 Tons Of Fracking Waste Have Been Dumped There - New York’s ban on fracking hasn’t been enough to completely shield the state from its public health and environmental risks, a prominent state environment group charged on Friday. In a report titled “License to Dump,” the group Environmental Advocates of New York (EANY) accused seven state landfills of accepting potentially hazardous waste from Pennsylvania’s fracked oil and gas wells. Using information obtained from the Pennsylvania Department of Environmental Protection, the group said at least 460,000 tons of solid drilling waste — which can contain heavy metals, chemicals, and naturally occurring radioactive material — have been dumped in those landfills since 2010. “These are highly radioactive wastes. They are notoriously toxic,” report author Liz Moran told ThinkProgress. “And to just be accepting them in our landfills without knowing for sure that the public is going to be safe, it’s just irresponsible.” The group’s report accuses the state Department of Environmental Conservation (DEC) of failing to adequately monitor the landfill sites for radioactivity, and criticizes the state for allowing fracking waste to be disposed in New York despite an ongoing moratorium and upcoming ban on the controversial well stimulation technique.
Why Pennsylvania Exports Surplus Frack Filth to New York - Pennsylvania’s biggest export commodity to New York is toxic radioactive frack waste. Who needs a frack ban, when you can just import the frack filth and skip the middleman? New regulations on frack filth in Pennsylvania make it likely that more frack filth will be exported to New York, where regulatory oversight is lax. So it easier and cheaper to dispose of drill cuttings and processed frack flowback by trucking it across the border into New York. How much of this fracking goo do you want oozing out of your local landfill ? Or slathered onto your roads ? At least 460,000 tons and 23,000 barrels of waste from Pennsylvania drilling operations have been taken in by a few New York landfills since 2010, a new analysis Thursday indicates. The report from Environmental Advocates of New York analyzed state data from Pennsylvania showing where natural-gas drillers reported taking their waste. Drillers hauled waste to five New York landfills from 2010 through 2014, including three along the Pennsylvania border: Chemung County Landfill in Lowman; Hakes Landfill in Painted Post, Steuben County; and Hyland Landfill in Angelica, Allegany County. Among solid waste, the Chemung landfill led the way, accepting 192,896 tons, the report said. The Allied Waste facility in Niagara Falls accepted 21,762 barrels of liquid waste, the data showed. The report faulted New York for letting the facilities accept the waste — which includes naturally occurring radioactive materials — particularly after Gov. Andrew Cuomo’s administration said it would ban high-volume fracking. But the state Department of Environmental Conservation criticized the report as “inaccurate, misleading and irresponsible.”
New Yorker Sees Risk Of Terrorists Using Oil Trains -- Could terrorists use one of the trains transporting flammable crude oil throughout the country as a weapon of mass destruction? That disquieting scenario was sketched out Tuesday by Rep. Sean Patrick Maloney, D- N.Y. At a hearing of the House Transportation and Infrastructure Subcommittee on Railroads, Pipelines, and Hazardous Materials Maloney said he represented an area of the Hudson Valley that “sees an enormous amount of oil being moved both by rail and by barge down the Hudson River.” He pointed out that before Sept. 11, 2001 terrorists had never seized control of an aircraft and used it as a weapon to inflict mass casualties. “What concerns me very much is the possibility that an oil train could be similarly taken and directed and used as a weapon of mass destruction,” Maloney told Edward Hamberger, president and CEO of the Association of American Railroads (AAR). Oil trains move through highly populated areas and near “sensitive military assets,” Maloney said, noting that the Military Academy at West Point is in his district. “A train goes right under the main building” at West Point, he said. He’s worried about “an extraordinary amount of unguarded track where a shaped charge, an IED, could be placed and remotely detonated.”
Groups in three states join forces against pipeline - Residents of three states and more than 24 organizations have joined forces as StopNED to fight the Northeast Energy Direct (NED) proposal, which would bring natural gas from the shale formations of Pennsylvania into New England through a new pipeline that would traverse New York, Massachusetts and southern New Hampshire. StopNED has been active in Massachusetts for the past year. In October, the group joined Stop the Pipeline Coordinating Committee (SPCC) of Groton, Mass., in announcing a Bay State petition campaign for public hearings on the Kinder Morgan proposal. For much of 2014, the opposition was concentrated in New York state and northern Massachusetts, where most of the route was proposed. Late last year, Kinder-Morgan re-routed the project through southern New Hampshire, citing the availability of existing pathways for power lines. “Kinder Morgan moved a significant portion of the route into New Hampshire adjacent to an existing transmission corridor claiming it would minimize impacts when, in reality, it will still require the acquisition of an additional 100-foot-wide right of way, directly affecting hundreds of homeowners in 17 towns,” said Doug Whitbeck of Mason, one of the New Hampshire organizers.
Town Sues FERC, Claims Acts Are Unconstitutional — The town of Deerfield plans to file a negligence claim against the United States government today in its fight against the planned natural gas pipeline through Franklin County. The tort action claims that a 2005 change in the federal Natural Gas Act that gave the Federal Energy Regulatory Commission authority to regulate the transportation and sale of natural gas destined for sale overseas is unconstitutional. Filed under the Federal Tort Claims Act, which gives private parties the right to sue the federal government for damages if they are injured due to the negligence of one of its employees, the claim takes aim at Tennessee Gas Co.’s proposed 36-inch diameter natural gas pipeline and is the latest salvo in the town’s battle to keep the pipeline from passing through its limits. The claim was drafted and filed with the federal Department of Energy, the FERC, the U.S. attorney general and at the U.S. Attorney’s Office in Springfield on behalf of the town by Cristobal Bonifaz, a lawyer from Conway who has been representing Deerfield free of charge as it fights the project. Many of the project’s opponents have raised concerns over the past year that much of the gas that will flow through the $4 billion, 300-mile-long pipeline is destined for export, claiming the volume of gas that is expected to travel along the pipeline from the Midwest Marcellus shale reserves — estimated at about 2.2 billion cubic feet per day — far exceeds the amount of gas that could be consumed in New England. The filing includes a report by David Gilbert Keith, a member of Deerfield’s Energy Resources Committee and an independent environmental researcher, in which he concludes that most of the gas will be likely be liquefied and exported. He based his findings on an analysis of data from the federal Energy Information Agency.
6 counties cut from proposed ET Rover pipeline route - A large natural-gas transmission pipeline proposed for construction through southeast Michigan will now impact far fewer counties. A deal with an existing pipeline operator means the ET Rover pipeline will no longer be built in Oakland, Macomb, St. Clair, Genesee, Shiawassee and Lapeer counties, Rover Pipeline announced Monday. The pipeline, which still requires federal approval, would carry more than 3 billion cubic feet of gas per day from the production areas of Pennsylvania, West Virginia and Ohio to Midwest markets including Michigan and beyond through a major gas hub near Sarnia, Ontario. Rover Pipeline, a subsidiary of Dallas-based Energy Transfer Partners, announced the route change. The 42-inch pipeline would still be partly constructed in Michigan, from a hub in Defiance, Ohio, through Lenawee, Washtenaw and Livingston counties. There, it would interconnect with the existing Vector pipeline, operated by DTE Energy and Canadian oil and gas transport giant Enbridge. The 348-mile, 42-inch Vector Pipeline, according to the company’s website, began operation in 2000. It transports about 1.3 billion cubic feet of natural gas per day from the Chicago area to parts of Indiana and Michigan, and then to Canada. Vector also leases a 59-mile, 36-inch diameter pipeline between Milford and Belle River from DTE.
Michigan group helps local governments control fracking - A Michigan township took careful steps this month to indirectly regulate oil and gas development within its borders — a legally tricky move amid growing public unrest and uncertainty over hydraulic fracturing here. Cannon Township , about 20 minutes northwest of Grand Rapids in West Michigan , adopted a series of ordinance changes that regulate new building construction, drilling equipment and “unwholesome substances.” While townships and counties are preempted by state law on many aspects of oil and gas development, including hydraulic fracturing, they can focus on some ancillary activities of the practice and enforce police powers to give local residents some say. One Traverse City-based group in particular, FLOW (For Love of Water), is on a sort of information and guidance tour, teaching communities what they can do through its Model Local Ordinance Program. The group is made up of a coalition of environmental groups around the state. Adopted by the township board earlier this month, the new rules involve construction of “accessory buildings,” which include more requirements for permits to build structures related to drilling exploration. Drilling processes also have to comply with the city’s lighting ordinance, which would require a variance for lighted structures taller than 25 feet. Finally, the township updated its “unwholesome substances” ordinance, allowing it to step into cleanup practices if a spill occurs.
Survey: Majority of scientists oppose expanded use of fracking - A new survey out this week from the Pew Research Center finds scientists have a more negative view of fracking than the general public. Among scientists, 31 percent favor the increased use of fracking, while a majority– 66 percent– are opposed. The general public is slightly more positive, 39 percent of adults favor it, while about half (51 percent) are opposed. The phone survey included 2,002 adults nationwide, as well as 3,748 U.S.-based members of the American Association for the Advancement of Science (AAAS), the world’s largest general scientific society. The scientists’ views about fracking vary across different disciplines. More than half of the engineers surveyed support more fracking (53 percent), while just 25 percent to scientists in the biological and medical fields favor it. Earth scientists fall in the middle– 42 percent favor it.
Zone or Ban Fracking ? A Virginia County Opts For Zoning -- Zoning laws vary by state. In some states (New York) land use laws can be used to prohibit fracking completely. In Texas, some cities, such as Dallas, have used zoning laws to severely limit where fracking can occur inside the city. Other cities such as Denton have banned it under their zoning laws. In some states, such as New Mexico, counties have used land use controls to curtail where fracking can be done. A Virginia county has taken this approach. The King George Board of Supervisors stopped short of prohibiting fracking—because such a ban might lead to lawsuits—but plans to put strict zoning regulations in place that probably will keep gas and oil drilling out of the county. Supervisor Dale Sisson Jr. said “none of us really support” drilling, but said the county couldn’t ban the process outright.Doing that might make it “the test case for legal action,” said Supervisor Ruby Brabo. There are differing opinions among state, local and environmental officials as to whether localities have the authority to prohibit hydraulic fracturing, the process of injecting water and chemicals deep into the ground to loosen trapped natural gas or oil. But all seem to agree that counties can control these kinds of actions through zoning ordinances—and put such strict regulations in place that would make it impossible or impractical for companies to drill there.
Lariat cuts 265 Permian workers - Driller Lariat Services laid off 265 people in the Permian Basin as it closes its divisional office, company officials confirmed Thursday, representing another sign of the downturn’s impact on jobs amid low oil prices. “We’ve already got rid of them,” said Manuel Molinar, the Odessa-based operations manager of pulling unit services in the Permian Basin, saying the layoff notices given this week were to “all the departments. Lariat Services is shutting down in the Permian Basin.” He referred further questions to corporate officials with Lariat’s parent company SandRidge Energy, an Oklahoma-based exploration and production company. “It’s safe to say that both a steep contraction in crude oil prices and the downturn in the number of drilling rigs had a big impact on that decision,” said Jeffrey Wilson, the vice president for government and public affairs for SandRidge. “A $60 decline in the price of crude oil in the past six months weighs heavily.” The regional oil price benchmark, Plains-West Texas Intermediate, ended at $41 on Thursday. That is nearly 60 percent less than the peak price of June.
Falling Prices Spread Pain Far Across The Oil Patch - WSJ: Trouble has been looming over the oil patch since crude prices began falling last summer, from over $100 a barrel to under $50 today. But only now are the long-feared effects of a bust starting to ripple through the complex energy ecosystem, affecting Houston executives, California landowners and oil old-timers in Oklahoma. Many big energy companies have said they plan to slash billions of dollars in spending along with thousands of jobs; energy giant ConocoPhillips told employees Thursday to expect a salary freeze and layoffs. Indicators like drilling permits in Texas have fallen sharply. Cutbacks aren’t yet reflected in broad data on employment, home sales or tax collections. For example, the federal Bureau of Labor Statistics says that employment in oil and gas extraction rose in December to 216,100, the highest level since 1986. But fallout is beginning to affect people, starting with the legions working as suppliers to the energy industry. Eric Herschap is chief operations officer at Exclusive Energy Services LLC, a private company in Orange Grove, Texas, that offers services, including equipment rentals, to exploration companies. His customers are demanding price cuts of 15% to 25%, and Exclusive offers additional discounts beyond that, he says. So the company laid off 10 of its 45 employees and is cutting bonuses for those who remain. Mr. Herschap says his brightest engineers are now fielding phone calls from customers with technical questions. Nonenergy companies that rely on roughnecks are also pulling in their horns.
When "Rumor Becomes Reality" - This Is The Devastation Across The US Oil Patch - "This is going to hurt, no question," fears a landowner in Santa Barbara with a dozen oil wells. Layoffs are "kind of like a death in the family," exclaims a geophysicist in the Permian Basin. Houstonians were hoping for a hiccup, says one restauranteir, but now "they're getting more cautious." As WSJ reports, rumor is becoming reality across America as "unambiguously good" news of low oil prices turns from a trickle to a deluge of job losses and insecurity. Cutbacks aren’t yet reflected in broad data on employment, home sales or tax collections. But fallout is beginning to affect people, starting with the legions working as suppliers to the energy industry. As The Wall Street Journal reports, Trouble has been looming over the oil patch since crude prices began falling last summer, from over $100 a barrel to under $50 today. But only now are the long-feared effects of a bust starting to ripple through the complex energy ecosystem, affecting Houston executives, California landowners and oil old-timers in Oklahoma
Anadarko to slash spending in 2015 -Anadarko Petroleum, which has offices in both Texas and Colorado, has announced its plans to cut spending in 2015, according to the Houston Business Journal. Anadarko joins a laundry list of companies across the nation that have announced similar cuts for the 2015 fiscal year. The announcement comes a day after the company released its fourth-quarter results in which the company reported a net loss which cost common stockholders $395 million, or $0.78 per share. Despite the fourth-quarter loss, Anadarko CEO Al Walker says the company had a solid year overall. “Anadarko’s fourth-quarter operating performance was a capstone to another terrific year for our company,” said Walker. “In 2014, we demonstrated the quality of our portfolio by delivering results that exceeded the midpoint of our initial sales-volume guidance by approximately 38,000 BOE per day, while staying well within our initial range of capital investment guidance and generating free cash flow.” Anadarko’s 2015 capital plan and outlook is scheduled to be released a month from today. Anadarko executives say the company’s Wattenberg field in Colorado is one of Anadarko’s assets best suited for investment this year. In 2014, the Wattenberg field achieved year-over-year growth of about 55 percent in 2014.“We see ourselves in a period here of trying to build value, maintain flexibility and not grow in a low commodity price environment that we see as less than attractive,” said Walker. To view Anadarko’s news release on its fourth-quarter results, click here.
The End of the Barnett Shale? Recent Earthquakes and an Epic Fault Line May May Erode Enthusiasm for Further Fracking in Dallas County -A 2.4 magnitude earthquake ushered in the New Year near the old Texas Stadium in Irving, TX. The event was yet one more in a series of frequent seismic episodes to rattle Dallas County residents. Then, eleven earthquakes hit Irving five days later on January 6th and another quake struck the same area at 1 a.m. on the 7th. Notably, the twelve tremors over just 24 hours followed five earthquakesoccurring over four days in late November, the largest of which was felt by many tens of thousands of residents. The old Texas Stadium is located at the intersection of Highways 114 and 183 in Irving, TX, about three miles west of Dallas Love Field Airport. Seismology experts at nearby Southern Methodist University's (SMU) Earth Sciences Department have been working overtime recently to position earthquake monitoring sensors in Irving, the epicenter of all but one of the Dallas County earthquakes recorded this year. According to SMU's media office, January's earthquakes are the "fourth sequence of earthquakes in the Fort Worth Basin since 2008." SMU's studies on two of the four sequences occurring in nearby Tarrant County cited "wastewater injection wells [from natural gas drilling operations] as a plausible cause of the seismicity." Tarrant County abuts the western border of Dallas County and is the #1 natural gas producing county in Texas, according to the Railroad Commission of Texas (RRC). Their September 2014 "Gas Well Counts by County" report indicates that 4,015 productive gas wells occupy Tarrant County's 897 square miles. In contrast, there are 31 oil and gas wells in Dallas County. Might the recent spate of Dallas County earthquakes also be linked to the natural gas fracking bonanza that has swept much of North Texas over the past six years?
Houston energy company defaults on debt payment -- As the old saying goes, “just when you thought things couldn’t get any worse.” Well, for Houston-based Lucas Energy, things have gone from bad to worse. The company said Friday that it has defaulted on a debt payment dating back to December 13 of last year, which means it will now be paying a defaulted interest of 18 percent per year on the $7.7 million it owes under the loan agreement. Lucas had been in financial turmoil for months as it struggled to boost revenue in a weakening energy sector. The company was even in danger of being delisted from the New York Stock Exchange in August 2014, but was granted a compliance extension shortly thereafter through October. Lucas Energy CEO Anthony Schnur commented: “The plunge in crude oil prices has required us to reconsider all alternatives. We are actively and aggressively pursuing options to secure funding through a corporate combination or project financing arrangement. We believe we have made significant progress toward establishing a definitive path forward."
Louisiana Squeezed as Oil Prices Drop - As oil prices drop, the squeeze has begun in south Louisiana. It starts with ugly state budget projections, layoff announcements and freezes on new construction projects. Cutbacks at the drilling companies lead to cutbacks at the service companies, and before long the grocery stores and car dealerships start feeling it.“The price of oil,” Mr. Lafont said over biscuits and coffee in a back room of his office just off the bayou, “controls everything in south Louisiana.”But every downturn is a little bit different, and every downturn falls unevenly — even within the oil industry, as Louisiana’s complicated place in the current price collapse shows. The frontline casualties of the current price collapse have been in the shale-drilling boom towns of Texas and North Dakota. These shale plays, where hydraulic fracturing tapped massive oil reserves, rocketed into prominence and have come hard back down to earth. There has been little of that activity in Louisiana. The large swath of oil-rich shale that spans the center of the state is so geologically complicated that it has mostly been unexplored. And while some small well operators throughout Louisiana will be badly hurt, oil exploration within the state has generally been on the decline for years. The main oil exploration these days takes place out in the federal waters of the Gulf of Mexico. Many of these are multimillion-dollar, 10-year operations, so involved that they are relatively shielded from market slumps — as long as the slumps do not last too long.
Oklahoma drilling company to cut 2,000 jobs -- Oklahoma-based drilling contractor company Helmerich & Payne’s CEO announced Thursday that the company may have to cut as many as 2,000 jobs. Helmerich & Payne CEO John Lindsay commented: “Our field employee count is directly proportional to our rig count. Based on what we know today, it is possible that we will have approximately 2,000 or more field positions eliminated by the foreseeable rig reductions. This is, without question, the worst part of the downturn.”Helmerich shares fell as much as 10 percent to $54 on Thursday as weak forecast for 2015 margins and revenue overshadowed a better-than-expected quarterly profit. Helmerich said less than 200 rigs would be active by the end of the current quarter, down from over 297 in the first quarter. The company said that it expects rig revenue in its U.S. land drilling unit to average $27,000-$27,500 per day in the second quarter, below the $29,457 it recorded in the first quarter. Helmerich, which had about 11,901 employees as of September 30, also said it would now build only two high-tech FlexRigs per month this year, down from the four rigs it had planned.
CA Officials Allowed Fracking to Taint Drinking Water Amid Record Drought -- Oil companies in drought-ravaged California are pumping wastewater from their operations into aquifers, potentially contaminating groundwater supplies that have become increasingly important. State regulators permitted companies to drill hundreds of waste-disposal wells into aquifers that store water for drinking or irrigation, the San Francisco Chronicle reported. Companies injected a blend of briny water, hydrocarbons and trace chemicals. Most of the wells are located in the state’s Central Valley, where residents are pumping so much groundwater to cope with the historic drought that the land has started to sink. "It is an unfolding catastrophe, and it’s essential that all oil and gas wastewater injection into underground drinking water stop immediately,” said Kassie Siegel, director of the Climate Law Institute at the Center for Biological Diversity environmental group. So far, tests of nearby drinking-water wells show no contamination, state officials said. But the federal Environmental Protection Agency is still threatening to take control of monitoring the waste-injection wells after more than 30 years of state management. “If there are wells having a direct impact on drinking water, we need to shut them down now,” said Jared Blumenfeld, regional administrator for the EPA. “Safe drinking water is only going to become more in demand.”
Oil Companies Pumping Waste Into California’s Water, It’s Probably Fine -- You probably heard about this big drought in California, especially if you live there and you haven’t washed your car for months because of rationing and stuff (as opposed to those of us who just don’t wash our cars because we call road dust a “patina”). It’s a seriously bad thing, and if your state is pumping so much groundwater that the ground is literally sinking in some areas, then you might just be a bit concerned about the San Fransisco Chronicle’sinvestigation of oil companies pumping wastewater from drilling operations right down into Central Valley aquifers containing drinkable water. Legally, with permission from state regulators. Since 1983. The Chronicle explains where all that dirty water is coming from, and where it’s going: California produces more oil than any state other than Texas and North Dakota, and its oil fields are awash in salty water. A typical Central Valley oil well pulls up nine or 10 barrels of water for every barrel of petroleum that reaches the surface. In addition, companies often flood oil reservoirs with steam to coax out the valley’s thick, viscous crude, which is far heavier than petroleum found in most other states. They pump high-pressure water and chemicals underground to crack rocks in the controversial practice of hydraulic fracturing. They use acid and water to clear up debris that would otherwise clog their oil-producing wells. All of that leftover water, laced with bits of oil and other chemicals, has to go somewhere. Pumping the liquid — known in the industry as produced water — back underground is considered one of the most environmentally responsible ways to get rid of it.
Anti-fracking coalition calls for shut down of toxic injection wells - A coalition of anti-fracking groups and the Center for Biological Diversity today urged the federal Environmental Protection Agency (EPA) to immediately shut down hundreds of injection wells that are illegally dumping toxic oil industry wastewater into scores of California aquifers during the midst of a record drought. Oil and gas companies over decades used more than 170 waste disposal wells to inject oil and gas wastewater into dozens of aquifers containing potable water, in violation of state and federal law, the San Francisco Chronicle reported. The majority of these violations are located in California ’s Central Valley, while others are near San Luis Obispo and Santa Maria . (http://www.sfchronicle.com/business/article/State-let-oil-companies-taint-drinkable-water-in-6054242.php) “Oil companies in drought-ravaged California have, for years, pumped wastewater from their operations into aquifers that had been clean enough for people to drink,” said David Baker, reporter. “They did it with explicit permission from state regulators, who were supposed to protect the increasingly strained ground water supplies from contamination.
University including earthquake safety in emergency planning - In the past, earthquakes in Wichita were few and far between. After, Wichita State was hit with a 4.8 magnitude quake on Nov. 12, officials felt the need to provide safety instructions for students on campus, just in case. Though nothing major has yet to hit Wichita, campus officials still feel students need to be cognizant of potential injurious outcomes of earthquakes, because buildings with foundations resting on unconsolidated landfill — which WSU has — are most at risk. Toni Jackman, WSU department of geology lecturer, said she believes that although the quakes are usually small, they could still be dangerous. “The geology department found that hydrofracking — a well stimulation technique in which rock is fractured by a hydraulically pressurized liquid made of water, sand, and chemicals — is unlikely to cause earthquakes, but it requires a large amount of water which they put down the shell in order to get the oil out,” Jackman said. “The problem is that the water has to go somewhere; and so they are putting these deep injection wells and putting the water down there and pushing it out into the spaces in the rocks. Doing is lubricating and also increasing the pressure and that’s what’s causing all of these little earthquakes here.” When the 4.8 quake hit Wichita in November, individuals reported to local news outlets about damages to homes and buildings in the area. KWCH reported an uprooted tree with a diameter of 18 to 20 inches and a propane tank shifted off its foundation. Damages like this caught the attention of officials who felt the need to inform the WSU community with the most efficient way to protect themselves should a quake occur.
Colorado oil, gas task force considers 91 pages of recommendations - — Gov. John Hickenlooper’s oil and gas task force sat down again Monday to discuss recommendations by task force members to solve the state’s increasing problem of urban drilling. The 21-member task force meets again today at the Colorado Convention Center, and is charged with finding a solution to the problem of the oil and gas industry intruding on the Front Range. The task force has been meeting since August and has so far spent its meetings gathering information from experts in different fields affected by the oil and gas industry and hearing testimony from residents. But Monday’s meeting was a little different. Rather than hearing from outsiders, the group was asked to put together recommendations, which were presented at the meeting. “This is a very different meeting than what we’ve seen so far,” said Mike King, the executive director of the Department of Natural Resources. “They’ve been listening for so long and this is really the first opportunity they’ve had to begin to deliberate and talk among themselves.” So far, the group has collectively submitted 91 pages worth of recommendations. Task force members spent the day discussing them, and talk will pick up again this morning. Suggestions have included other setback requests, more control of drilling by local governments, and increased support for oil and gas monitoring through the Colorado Department of Public Health and Environment.
Colorado oil and gas spill report for Feb. 2 - The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks. Information is based on Form 19, which operators must fill out detailing the leakage/spill events. Any spill release which may impact waters of the state must be reported as soon as practical. Kerr McGee Oil & Gas Onshore LP, reported on Jan. 22 that during routine inspection a release was discovered at a production facility outside of Platteville. It is approximated that 12 barrels of crude oil and three barrels of produced water were released. Fluids did not breach the steel lined berm. Kerr McGee Oil & Gas Onshore LP, reported on Jan. 23 that during a routine inspection, outside of Longmont a release was discovered at a production facility. It is approximated that nine barrels of crude oil were spilled within the lined steel berm, fluids were not released outside of containment. Ward Petroleum Corp., reported on Jan. 23 that a pumper noticed a spill after examining a well that had not produced for two days outside of Nunn. The leak was determined to be from a split flowline. The well was immediately shut in and a backhoe was ordered to enable a temporary berm construction that would keep the spill from navigating further. It is approximated that 15 barrels were released from the pumper. Noble Energy Inc., reported on Jan. 26 that during the removal of a water vault, impacts were discovered, outside of Keenesburg. It is approximated that less than five barrels of produced water spilled. Soil and groundwater were tested and confirmed to have exceeded COGCC standards. Kerr McGee Oil & Gas Onshore LP, reported on Jan. 26 that during abandonment activities a historical spill was discovered outside of Fort Lupton. It is unknown the amount of produced water that was released, but it was approximated to have been less than five barrels. Kerr McGee Oil & Gas Onshore LP, reported on Jan. 26 that during abandonment activities a historical release was discovered at a production facility. It is unknown the amount of oil spill that was released, but it is approximated that less than five barrels spilled.
ND oil tax exemption set to start with slipping crude prices — A tax cut that will cost the state about $160,000 in lost revenue for each well drilled is slated to begin on Sunday. The extraction tax exemption is an incentive to keep companies drilling new wells when they might otherwise go idle due to low oil prices. That trigger needs to average $55 for a month but is due to expire this summer. North Dakota sweet crude was fetching about $45 a barrel late last week. The price was well below the trigger through most of January. The tax incentive is one of two that gives North Dakota oil industry a big tax break when crude prices nosedive. State law also forgives a 6.5 percent extraction tax if the five-month average price of a barrel of oil slips below $52.58.
North Dakota Faces Boom-Town Dilemma as Oil Tumbles -- The city at the heart of North Dakota ‘s energy boom is asking for $80 million of state money to upgrade streets, improve a landfill and expand city hall to serve a population that’s grown by two-thirds since 2010. Now, lawmakers in Bismarck may find themselves putting their faith and their funds in Williston’s unbridled growth even as crashing crude prices have chopped $4 billion off the state’s forecast for oil and natural-gas tax collections in the next two years. Legislators are considering a $1.1 billion bill that would tap savings from energy-related revenue to send money to western North Dakota , including Williston, for infrastructure. The Senate passed the measure Jan. 29 by 44 to 2 and the House takes it up this month. For Senator Dwight Cook, memories of the 1980s oil bust were enough to prompt a no vote. “I would love to vote for this bill, but considering our financial situation right now and the uncertainty of the future, this bill is too rich for me,” Cook, a Republican from Mandan , southeast of Williston, said on the Senate floor.
Adversity stirs innovation at hydraulic fracturing conference - In the Bakken Shale, it takes $6 million a year in maintenance and repair costs to keep a frac fleet of trucks and pumps up and running, leaving North Dakotan oil field workers no choice but to replace broken valves and other pump components every four days. Gusek says his company, Liberty Oilfield Services, is a month or two away from bringing a new technology to market that could fix that problem. It is planning to deploy a trailer carrying a heavy tungsten carbide-built pumping system that will allow sand to bypass the high-horsepower charge pumps and only mix with water and chemicals in an outside blender before shooting through tungsten carbide tubes — many times stronger than steel — and into the well. That may cut down on oil field maintenance costs at a time when U.S. shale oil producers are scraping for every penny after crude’s seven-month plunge to around $50 a barrel. At a booth in the Society of Petroleum Engineer’s seventh annual Hydraulic Fracturing Technology Conference in the Woodlands on Wednesday, Gusek said the new pumping system won’t be the only new, more efficient technology oil companies need, but it’s another tool that could save them time and money. “We’ve got to learn how to be able to work with lower and lower oil prices,” Gusek said. It has been done before, Gusek noted: Natural gas prices had sunk to record lows in 2011 and 2o12, but natural gas producers have slowly returned to gas fields as new technologies have crept in to make gas production more profitable at lower prices.
ND bill cuts time for wasting natural gas from oil well — North Dakota’s Senate is considering legislation that would drastically cut the time oil companies can burn off and waste natural gas from an oil well. Democratic Sen. Connie Triplett is sponsoring the bill that would require companies to begin paying royalties and taxes on natural gas within 14 days after an oil well begins production. Companies are given a year at present. Triplett and others told the Senate Energy and Natural Resources Committee on Friday that mineral owners and the state are being shortchanged because revenue on the wasted gas is not immediately being collected. North Dakota Petroleum Council President Ron Ness says the industry has invested $13 billion to capture the gas. But he says there is still a challenge obtaining permission to place gas pipelines in some areas.
Occidental suspends drilling in the Bakken - On Wednesday a representative from Occidental Petroleum Corp. told Dunn County commissioners that the company probably won’t be actively drilling or fracking in the area until March, according to a report from The Dickinson Press. In an earnings call last month, Occidental CEO Steve Chazen announced that the company “virtually eliminated” capital spending in North Dakota and in some international oil sands. The company reported that this was due to “unacceptable returns in the current price environment.” The Dickinson Press reports that for several months, an Occidental spokesman had been reporting to the county commission about where the company’s six rigs operating in Dunn County would be moving. Currently the company has one rig completing a well in the county. Afterwards it will be taken out of use within 10 days. The final session of hydraulic fracturing was completed Tuesday night and the equipment will be moved offsite within a week. The company is a major player in Dunn County and throughout the oil patch, but through March, it will focus on producing oil from existing wells rather than drilling new ones. Since December the rig count in North Dakota has dropped substantially due to the drop in oil prices. As of today, the rig count sits at 136, down by around 50 since December of last year. The price of oil dropped by almost half since the summer. The counties located in the core of the Bakken formation (Dunn, Williams, McKenzie and Mountrail) were at first resistant to the price decline due to lower breakeven prices, but Occidental’s exit from Dunn County indicates that even the core counties aren’t immune to low prices.
Storing stacked rigs in the Bakken - As the current slowdown of drilling operations in the Bakken persists and rigs are stacked, they have to go someplace, but where? The Dickinson Press reports that as the rig count continues to fall, companies are in growing need of locations to store the unused drilling rigs. However, the rigs can’t stray too far from the oil patch in the event that prices start to climb and operations resume. In North Dakota, though, administrative code doesn’t usually allow rigs to be stacked on drilling sites. The code considers a stacked rig to be unused equipment and requires the rig to be moved or put back to use within a reasonable time limit. Patterson-UTI Drilling, for example, has leased rural land in Stark County. The landowner was required to obtain a conditional use permit before storing rigs on the swath of land outside Dickinson. Like the rest of the most recent oil boom, small North Dakota communities are having to deal with problems that have never been an issue in the past. During a recent zoning hearing, County planner Steve Josephson said receiving requests for such permits is a first for him, and he suspects there will be similar requests in the near future. “This is a test for us,” he said. Oil prices, which have decreased by roughly half since last summer, are causing the current slowdown in the Bakken formation. As of today, the rig count sits at 145, down by about 40 since last December. The downturn has shifted drilling operations to the core of the Bakken formation in Dunn, Williams, McKenzie and Mountrail counties where drilling is more economical. The rigs that are being stacked need a place to go, though, and can sometimes require an area of up to almost three quarters of an acre, or about two thirds of a football field.
Continental Bakken reserves continue to grow - Continental Resources, one of the top producers in the Bakken formation, has announced that the company’s proved reserves and production rates are continuing to grow with each passing year. The company reports that as of December 31, 2014, its proved reserves increased from the prior year by 267 million barrels of oil equivalent (MMBoe), or 25 percent. Its current proved reserves are reported to be 1.35 billion barrels of oil equivalent (Boe). At the end of last year, the company operated 83 percent of the reserves. Continental’s proved reserves have grown at a compounded annual rate of 39 percent since the end of 2010. When compared to the year-end figures from 2013, the proved developed producing reserves increased 21 percent to 490 MMBoe by the end of 2014. Additionally, the company had 2,994 gross (1,565 net) proved undeveloped locations at the end of last year. Of these proved but undeveloped locations, 82 percent are located in the Bakken formation. The company’s proved reserves at the end of 2014 had a net present value of $22.8 billion, a 13 percent increase from the year-end 2013 figures.
Optimism Remains In North Dakota, But For How Long?: Ordinarily, a good way to gauge the business climate of a region or a state is to look at its employment statistics. So you might expect to see the jobless rate in North Dakota to be rising as the price of oil drops. But in North Dakota, the poster child of the US boom in shale oil, the unemployment rate in December 2014 was just 2.8 percent, just a tick above the 2.5 percent recorded in April, two months before the big slide in oil prices began. And its payroll grew by 5.4 percent, or more than 24,000 workers, last year. “This won’t be a bust,” Harold Hamm told Bloomberg. Hamm is the founder and CEO of Continental Resources Inc., the largest leaseholder and producer in the Bakken shale region of North Dakota and Montana. “There’s plenty to do.” And finding workers can be hard work. So employers in North Dakota aren’t quick to lay off workers in a fairly remote state in the US upper Midwest with the country’s fourth-smallest population and, by extension, not a lot of able-bodied oil workers to go around. Besides, North Dakotans say, if the price of oil can fall, it can also rise again. As a result, layoffs are down, according to jobless filings: In December 2014, applications for unemployment insurance payments numbered 4,192, 12.4 percent lower than in December 2013.
Comment period extended for radioactive waste proposal — People who want to comment on proposed new rules dealing with the disposal of radioactive oilfield waste now have more time. North Dakota’s Health Department has extended the comment period to March 2. Health officials are proposing to allow elevated levels of oilfield radioactive waste to be dumped at some North Dakota landfills. Environmental Health Chief Dave Glatt (glaht) has said the proposed standard is still safe for humans and the environment. North Dakota generates up to 75 tons of radioactive waste daily, largely from so-called oil filter socks that strain liquids during the oil production process.
Oil cleanup on Yellowstone River on hold until ice melts -- — Cleanup work on a 30,000-gallon oil pipeline spill into the Yellowstone River near Glendive is effectively on hold for a month or more until ice on the river melts, state and pipeline company officials said Tuesday. About 25 people remain at the site to watch for oil-damaged wildlife and respond to any crude oil seen on the river. That’s down from a peak of about 125 people during the initial response, officials said. Less than 10 percent of the oil that spilled into the river has been recovered. It’s uncertain if that figure will significantly increase because much of the crude likely has dispersed as it was carried down the river, according to state officials. “Right now we’re in this phase where we’re watching it, but we’ll see what happens when the ice breaks up,” said Jeni Garcin with the Montana Department of Environmental Quality. The monitoring area spans a 90-mile stretch of the Yellowstone, from the spill site downstream to a bridge just across the North Dakota border. The cause of the Jan. 17 accident along Bridger Pipeline LLC’s Poplar line remains under investigation. The spill temporarily fouled Glendive’s drinking water supply and renewed calls for increased government oversight of the nation’s aging pipeline network. It was the second significant oil pipeline spill into the Yellowstone in less than four years, following a 2011 spill near Laurel. The section of line that broke upstream of Glendive was installed in 1967. It was originally buried beneath the river but somehow became exposed in the last several years, according to Bridger Pipeline.
Big Montana oil spill is latest involving pipeline company — The Wyoming company whose pipeline leaked 30,000 gallons of crude oil into the Yellowstone River in Montana and its sister company have had multiple pipeline spills and federal fines levied against them in the last decade, according to government records. Bridger Pipeline LLC, the operator of the Poplar Pipeline that broke recently near Glendive, Montana, recorded nine pipeline incidents between 2006 and 2014, according to the pipeline administration. Combined, they leaked nearly 11,000 barrels of crude. Its sister company, Belle Fourche Pipeline Co., recorded 21 incidents over the same period, during which a total of 272,832 gallons of oil was spilled. Both companies are operated from the same control room in Casper and are owned by the True family. Tad True, vice president of Bridger and Belle Fourche, said the companies have made great efforts to improve their compliance record in recent years. Since 2009, Bridger has been inspected eight times. Belle Fourche has been inspected on nine occasions. The companies have not been issued a fine in any of those inspections, federal records show.
USGS study links Montana oil spills to arsenic releases in groundwater -- Underground petroleum leaks can trigger arsenic spikes in groundwater, which could be a problem as the United States confronts a rising trend in pipeline-related accidents, such as the 39,000-gallon discharge into the Yellowstone River two weeks ago. The arsenic release is more of a long-term problem compared to the immediate hazard of benzene and other toxins that prevented 6,000 residents of Glendive from drinking tap water for five days. But U.S. Geological Survey researcher Barbara Bekins said it illuminates the difficulty of dealing with oil spills. “It showed up as an unintended consequence of the cleanup of other things,”. “Where you’re trying to clean solvents, dry cleaning fluids or petroleum, what’s often done is you add organic carbon to the ground. That turns the groundwater anaerobic, which can mobilize arsenic. Regulators need to think about when should people worry about arsenic mobilization - how far does it travel?” New USGS research released last week found that when bacteria break down petroleum underground, the chemical process can release naturally occurring arsenic. That toxic heavy metal then can dissolve into underground aquifers. A study in Bemidji, Minnesota, found such petroleum plumes produced arsenic concentrations 23 times higher than federal drinking water standards advise. The mobile arsenic can flow with the underground water to new locations away from the original spill site.
How To Frack a Mortgage. It’s Easy as Pie! - Just a sign a fracking lease. That effectively puts your loan into default. And gives the lender the right to foreclose. The intrepid Alma Hasse, explains how: (video) Some people, like Idaho Residents Against Gas Extraction (IRAGE) Co-Founder Alma Hasse, are sounding the alarm about possible mortgage conflicts and declining property values before Idaho’s gas and oil industry even has a chance to inflict damage on the market, and people’s pocketbooks and personal investments. Prior to moving to Idaho nine years ago, Hasse worked in the mortgage industry for 14 years in California, doing everything from “filling out applications,” to managing the Palmdale branch of the American Bankers Mortgage Corporation. In early 2012, Hasse asked Attorney Robert Wallace with the Boise-based Huntley Law Firm to review a gas lease signed by a Payette County resident with Bridge Energy — a company that went belly up, and had many of its leases subsequently snatched by Alta Mesa, Idaho. Wallace reviewed a New York Bar Journal article and wrote the lease appears to affect the rights of property owners. He gave several examples, including, “most of us have borrowed money secured by our property, or expect to sell it in the future. (a) We are required by law and good stewardship to protect it against the effects of hazardous materials. (b) These leases give the companies unfettered rights to cause permanent damage from hazardous activities, while (c) absolving them from fixing or even mitigating it.”
Administration’s “Balanced” Strategy Threatens Alaskan Oil -- On January 25, President Obama used his executive authority to ban oil production on 12 million acres of Alaska’s Artic National Wildlife Refuge by classifying it as wildnerness, including an estimated1.5 million acres of oil deposits. Two days later, the Bureau of Ocean Energy Management proposed opening a large portion of the South Atlantic Coast to oil and gas exploration, but dealt the Alaskan energy industry another blow by blocking development of over 9.8 million acres in the Beaufort and Chuckchi seas. Together, the onshore and offshore plans could ultimately cost substantially more than a few million barrels of oil. The administration’s plans could result in the closure of the Alaska Oil Pipeline, destroying the only means to transport 27 billion barrels of untapped oil in the Arctic Outer Continential Shelf to refineries. The “all-of-the-above” energy policy at one time advocated by the president is now being rebranded. The White House explained in a post on its website that the President’s energy strategy is now a “balanced,” all-of-the-above plan.
ConocoPhillips and Shell outline billions of dollars in cuts - FT.com: Two of the world’s largest energy groups, Royal Dutch Shell and ConocoPhillips, have set out plans for billions of dollars worth of cuts in their investment programmes in response to the plunge in crude prices. The cuts are part of a wave of reductions in capital spending announced by oil companies worldwide as they move to shore up their finances and protect dividends as cash flows are squeezed. The cuts have increased expectations that prices will rebound in the future as supply growth slows.BP has said it will cut 300 staff and contractor jobs from its 3,500-strong North Sea business and freeze salaries across the company in an attempt to cut costs. It has also sold down its equity interests in two massive Gulf of Mexico oilfields and relinquished its position as operator. French major Total announced earlier this month that it planned to reduce group-wide capital spending by 10 per cent this year and speed up billions of dollars in asset disposals. Though Shell and Conoco were both expected to follow suit, they differed sharply in the speed of the responses they announced on Thursday. Shell, the largest European oil group, said it would “curtail” its capital spending by $15bn over 2015-17, representing 40 projects that would be delayed or cancelled. Its spending for this year, however, is set to be only slightly lower than the $35bn it spent in 2014. Conoco, the largest US exploration and production company, said it planned a much steeper 33 per cent cut in its capital spending this year to $11.5bn, $2bn less than it had suggested in its previous guidance issued only last month. Occidental Petroleum, the fourth-largest US oil producer by market capitalisation, also said it would cut this year’s spending by 33 per cent.
Shell prepares to dismantle North Sea giants - FT.com: Royal Dutch Shell will on Tuesday set out ambitious plans to decommission the North Sea’s Brent oilfield — one of the UK’s biggest — in a multibillion-dollar project over the next 10 years that could be followed by other closures after the plunge in oil prices. The Anglo-Dutch energy group will within days begin public consultation on a disposal plan for the “topside” of Brent Delta — one of four platforms in the field that gave its name to the international crude price benchmark. Shell is anxious to avoid a repeat of the public furore 20 years ago over its attempt to dump the Brent Spar oil storage buoy in the Atlantic Ocean. The decommissioning of Brent Delta will involve lifting its 23,500 tonne steel superstructure that stands high above the waves — and includes the drilling rig and multistorey accommodation block — on to a giant ship called the Pieter Schelte. Shell executives say this will be the biggest offshore lift ever attempted, and could be a template for dismantling many of the North Sea’s larger platforms. The topside structure will then be taken by the Pieter Schelte to Teesside, where much of it will be scrapped and recycled into washing machine parts. But Shell will take more time to decide whether — and how — to remove Delta’s huge concrete legs and oil storage tanks. The bigger subsea structure, in water 140m deep and weighing 300,000 tonnes — as much as the Empire State Building — would take thousands of years to erode if left in place. Shell says the lifting of Delta’s topside, likely to happen next year, will “substantially reduce the risk, cost and environmental impact of the operation” — and is preferable to taking the structure apart piece by piece in the North Sea.
BP slashes capital spending by 20% - FT.com: BP has slashed projected capital spending for this year by about 20 per cent after a sharp fall in oil prices led to a multibillion-dollar charge and a headline fourth-quarter loss for the group. The UK-based oil major on Tuesday became the latest of the world’s biggest energy groups to curb spending in an effort to preserve cash flow and protect dividend payouts after a drop of 50 per cent in crude. It said it was taking action to respond to the likelihood of oil prices “remaining low into the medium term and to rebalance its sources and uses of cash accordingly”. Capital expenditure — money poured into new projects — is now expected to be about $20bn for 2015, substantially lower than earlier guidance of $24bn-$26bn and down on last year’s $22.9bn, BP said. It will reduce exploration spending, postpone “marginal” upstream projects and halt some downstream projects. On an underlying basis, excluding charges, replacement cost profit for the fourth quarter was $2.2bn, lower than $2.8bn for the same period a year ago but ahead of consensus forecasts for underlying earnings of $1.57bn. Analysts said that a change in the way Rosneft, the Russian state-owned oil company in which the group has a minority stake, accounted for the rouble’s plunge helped BP beat expectations.
Oil Majors’ Profits Take A Beating - The first quarterly earnings reports since the collapse of oil prices are in and the numbers show a significant deterioration in profits for the oil majors. Royal Dutch Shell went first on January 29, revealing a big jump from the same quarter a year ago, but down from the third quarter of 2014. In fact, Shell announced that it would cut $15 billion in spending over the next few years, an about-face from just a few months ago when it stated that it would leave capital expenditures unchanged in 2015. Shell’s CEO, concerned about the poor state of oil and gas markets, said that it may even consider withdrawing itself from significant assets held around the world, retrenching and focusing on North America. On the same day, ConocoPhillips also reported gloomy numbers. It plans on slashing 2015 spending by an additional 15 percent, which comes after a December announcement of a 20 percent cut in expenditures for the year. Chevron followed that up on January 30, posting its worst showing in five years. The $3.5 billion in earnings for the fourth quarter of 2014 was 30 percent lower than from the previous year. The California-based oil major says that it will trim spending by 13 percent. And on February 2, ExxonMobil reported a drop in earnings from $8.4 billion in the fourth quarter of 2013 down to $6.6 billion for the same quarter in 2014. The company blamed almost the entirety of its 21% fall in earnings on lower oil prices. ExxonMobil was alone in not revealing its spending plans for the rest of this year, pushing off an announcement until March.
Oil companies put Arctic projects into deep freeze - FT.com: In spite of objections from environmental campaigners, the Arctic has long been heralded as the next big frontier for “Big Oil”. A US geological study in 2008 estimated it held about 13 per cent of the world’s undiscovered oil — some 412bn barrels of oil equivalent — and 30 per cent of its undiscovered gas. Now, after a more than 50 per cent collapse in oil prices since last summer to less than $60 a barrel, there will be fewer drilling rigs heading north to the Arctic. The region is a high cost frontier because it is so remote, and for many energy groups halting exploration in the Arctic is likely to be preferable to abandoning cheaper projects elsewhere that offer swifter returns. “We will see something of a pullback in high-cost frontiers, and the most prominent of those is the Arctic,” says Andrew Latham of energy consultants Wood Mackenzie. “I wouldn’t expect anyone else to be pushing ahead with Canada, Greenland or other parts of the Arctic until we get a recovery in the price environment.” Indeed, Statoil, Norway’s biggest energy group, on Wednesday indicated it was unlikely to drill in the Norwegian Arctic this year. Eldar Saetre, chief executive, said it could delay development of the huge Johan Castberg field. Chevron of the US has shelved indefinitely plans to drill in the Beaufort Sea in the Canadian Arctic, while Statoil, Denmark’s Dong Energy and France’s GDF Suez have all handed back licences in Greenland. Meanwhile, ExxonMobil of the US was forced last year to pull out of its exploration joint venture with Russia’s Rosneft in the Kara Sea in the Russian Arctic, because of western sanctions against Moscow.
Exxon, Chevron set to boost production just as prices fall - — Exxon Mobil has been working for years on a fleet of enormous new oil and gas projects in places such as Abu Dhabi, Russia, Papua New Guinea, and the Gulf of Mexico designed to turn around what has been a consistent and alarming slide in oil and gas production. A record eight of these mega-projects came on-line last year, Exxon said Monday — just as oil prices were falling by more than half. “Investors would be more than happy to see production decline but oil prices higher,” said Fadel Gheit, an analyst at Oppenheimer & Co. No such luck this year. These enormous projects were conceived and started years ago, as prices were rising. Now they are starting to produce oil and gas at a time when the price of global crude has been eviscerated by rising supplies and weak growth in demand. On Monday Exxon posted a 21 percent decline in both revenue and profit for the fourth quarter because of lower oil prices. The company said it earned $6.57 billion in the quarter, the lowest since the first quarter of 2010, on revenue of $87.28 billion. Last year Exxon earned $8.35 billion on revenue of $110.86 billion.
Rise Of The Vulture Investing Class -- Drilling for oil is an expensive process. Until the oil begins to flow, companies have to shell out cash without seeing much in return. Without revenues from other wells already in production, oil companies have to take on debt to finance operations. Even for companies with big production portfolios, debt is a crucial source of funds to keep the treadmill of new drilling going. Between 2010 and 2014, the oil industry took on around $550 billion in debt, a period of time in which oil prices surged. Now with a crash, that volume that becomes especially hard to service. The largest banks – JP Morgan, or Citibank, for example – are so massive that losses on loans to the energy industry will likely result in only “slight negatives,” as JP Morgan’s Jamie Dimon put it a January conference call with investors. But smaller more regionally-focused banks, especially in Texas and North Dakota, are facing a much bigger problem. During the last oil crash in the 1980’s, around 700 banks failed after oil prices crashed. Analysts aren’t expecting failures to come close to those numbers, but there are a series of banks that have high percentages of their loan portfolios coming from the energy sector. For example, companies like International Bancshares has (42.4 percent), and Cullen/Frost Bankers (35.9 percent), two Texas-based regional banks, are highly exposed, as CNN Money reported in January. Canadian banks are also reeling from oil prices that have dropped by more than 50 percent since mid-2014. The S&P/TSX Commercial Banks index, an index of eight Canadian banks, dropped by around 10 percent in January, the index’s worst start to a year since 1990, according to Bloomberg. Even British banks could be on the hook. The Royal Bank of Scotland, Barclays, and a series of other British banks are exposed to more than $50 billion in high-yield loans in the energy sector.
Even If Oil Rally Continues, Lenders Still At Risk - Yves here. Even with the impressive oil rally of the last two days, it isn’t clear that producers and lenders are out of the woods. While some analysts contend that the bottom is in, others see the rally as technical, driven in large measure by short-covering, and likely to fade.The uncertainty lies in what is really happening on the production side. Even though market-watchers took cheer from a sharp fall in rigs in service to 2012 level, it’s possible to keep production levels high with fewer rigs. For instance, a January 20 article in the Financial Times discussed how BHP Billiton was reducing its rig count in the US for shale oil from 26 at year end to 16 by June. Notice this section: The company does not expect the slowdown to have an immediate effect on its oil and gas production, which it still expects to average about 700,000 barrels of oil equivalent per day in the year to the end of June, including a 50 per cent increase in US shale oil production. Catch that? BHP Billiton expects to achieve higher production with fewer rigs. The incentives of producers are just like that of OPEC: they need to keep revenues up to cover their obligations. That means it is not yet clear when we’ll see real reductions in output. Moreover, even if this rally holds, another question is how quickly prices get back to levels that producers deem to be viable, which is over $80 a barrel and more like over $100 a barrel. If prices languish in the $50-$60 range, it will not provide much relief.
Oil shock: More energy firms slash spending - Another batch of energy companies will slash spending this year as low oil prices force the industry to scale back growth ambitions. BP said Tuesday it will cut capital expenditure by about 20% this year, and delay some investments as falling prices slam earnings. The company will reduce exploration and production spending to $20 billion in 2015 -- down from an earlier estimate of as much as $26 billion. Total capital expenditure was $22.9 billion last year, around $2 billion less than initially forecast. BP is not alone. Chinese energy major CNOOC said Tuesday it will cut spending by as much as 35% this year. And Russian oil firm Gazprom will slash spending by $8 billion this year, according to a Reuters report. Last week, Royal Dutch Shell said it was scaling back its planned capital investment by $15 billion over the next three years. Chevron said it would trim spending by 13%. The impact of sliding oil prices has also prompted big job losses. Halliburton plans to cut 1,000 positions due to the depressed oil market, while BP has also announced layoffs. BP took a $3.6 billion writedown in the fourth quarter - largely due to the recent drop in oil prices - pushing the company to a $969 million loss for the period. Still, the group's earnings were not as bad as feared, and its shares gained 3% in London trading. BP also reported a slump in earnings from its 20% stake in Russian energy giant Rosneft, which has been hit by Western sanctions imposed over Russia's action in Ukraine.
China's CNOOC to slash 2015 spending in response to oil slump (Reuters) - Top Chinese offshore energy producer CNOOC Ltd announced a sharper than expected cut in capital spending for this year, in the first public response by a major Chinese oil company to the turmoil in the oil market. A 50 percent slide in crude prices since June due to slowing global demand and growing U.S. shale output is putting a heavy burden on oil companies around the world. The slump has wiped billions of dollars from their stock market values in recent months, and squeezed the spending of many oil majors. true Underscoring the severity of the impact from the oil price slump, state-controlled CNOOC said on Tuesday it will slash its 2015 capital expenditure (capex) by 26-35 percent to 70 billion-80 billion yuan ($11.19 billion-$12.79 billion), while still trying to grow production by up to 15 percent. The spending cuts are deeper than many analysts' estimates, some of whom had expected reductions of about 8 percent. "The company has certainly surprised the market with a far bigger cut in capex than it thinks," . "The combination of strong production growth plus the bigger-than-expected cut in capex bodes well for its future." Other major Chinese oil firms PetroChina and Sinopec are also expected to unveil lower budgets for 2015 when they release annual results in late March.
BP chief warns of oil industry slump - FT.com: BP chief executive Robert Dudley warned on Tuesday that the oil industry faces its worst slump since 1986, with crude prices likely to stay at sharply lower levels for “several years” after plunging more than 50 per cent since last summer. His bleak prognosis for the industry – in the grip of “a raging gale” – came as the fall in crude triggered steep cuts to capital spending and jobs at both BP and BG Group , two of Europe’s biggest energy groups. Cnooc, China’s third-largest producer, also announced spending cuts. The moves by BP, BG Group and Cnooc were the latest in a wave of measures by the world’s biggest energy groups designed to shore up cash flow and protect dividends. Mr Dudley, speaking to reporters, said Opec members had told him they wanted to “fundamentally test” the oil market to see if US shale producers who had led America’s output boom could continue pumping crude at lower prices. His comments point to a battle of wills ahead in the market as Saudi Arabia and other Opec members wait to discover if their decision in November – not to cut output in the face of weaker than expected global demand – knocks out higher cost production elsewhere. “When I talk to [Opec members], what they seem to be saying is the world has developed high cost oil in the US, and some in Canada, and why should they be required to shut in their low cost production to allow more and more high cost oil to come on to the market that’s economic at $100 [a barrel],” said Mr Dudley. “They do not want to give up market share to high cost oil if they don’t have to. I think they are going to see this through.”
A Long Time Before We See $100 Again Says BP Chief: Bob Dudley, the CEO of BP PLC, says he believes that the 7-month-old slump in oil prices isn’t likely to reverse itself for some time, perhaps years, because the problem seems to be deeply embedded in the very economics of oil. “The fundamental supply and demand does remind me of 1986 a bit, where we could go into a period in this decade of lower oil prices,” Dudley told Bloomberg TV on Feb. 3, and that the price of a barrel of oil may go no higher than $60 for up to three years. In 1986 the price of a barrel of oil plunged from $30 to $10 and didn’t recover until Iraq’s 1990 invasion of Kuwait. Today, Dudley said, “[w]e do have [oil] stocks filling up around the world. China, which is still growing, for sure, it’s just not as much as it did. … It will be a long time before we see $100 again.” Related: Oil Majors’ Profits Take A Beating Dudley’s saturnine mood wasn’t lifted by BP’s report the same day of a loss in the fourth-quarter of 2014. His company, the first of the oil majors to report a loss, attributed the decline mostly to accounting deficits caused by the lower value of some of its reserves. BP’s replacement-cost loss, similar to the net income reported by US companies, was $969 million for the period, compared with a profit of $1.5 billion in the fourth quarter of 2013. Softening the blow, but evidently not Dudley’s disposition, was the fact that the company’s shares rose in London trading immediately after the report became public because BP’s underlying earnings exceeded analysts’ expectations.
Pain in oil and gas industry continues, outlook bleak - The threat of union workers going on strike at U.S. oil refineries has raised more questions than answers for some in the industry, but pulling oil out of Texas wells will continue. While that production will continue, the economic outlook for the state based on oil and gas production doesn’t look too good, one petroleum economist said. Alex Mills, president of the Texas Alliance of Energy Producers, said Monday that a big question that will need to be answered is what refineries will do with the excess crude oil that will continue to flow to the Gulf Coast. A decision will have to be made, because oil producers in the field aren’t going to stop producing. “Once you’re producing on a lease, you have certain legal responsibilities to continue to produce that lease,” he said. “You can stop for a little bit — maybe 30 days — but there are real strict requirements within the lease. “The reason for that is the owners of the minerals — the royalty owners — have a right to require the producers (and) operators to continuously produce the lease.” Mills said the price of crude oil and gasoline is very speculative right now because of the uncertainty with the threat of a large strike looming. If there isn’t a walkout, speculators on the New York Mercantile Exchange might not raise the price of oil or gasoline. Any immediate change would likely be seen at the pump.
Weatherford to cut 5,000 jobs as it fights oil slump -- Weatherford International Plc plans to cut 5,000 jobs, or about 9 percent of its workforce, by the end of the first quarter as the oil services company tries to save costs amid sinking oil prices and budget cuts. The job cuts will focus on both operating and support positions and a majority of the reductions will be in the Western Hemisphere, the company said in a statement. Weatherford, which currently employs about 56,000 people across the world, expects the job cuts to result in annualized savings of over $350 million. “Due to the quickly changing market conditions, we are aligning and reducing our cost as well as organizational structures to match the new environment,” the company said. Weatherford said it expects its cost actions, a reduction in capital expenditure by $550 million to $900 million in 2015 and a positive contribution from working capital balances, to offset any reduction in earnings. Last month, the company said it would eliminate the position of chief operating officer as it copes with a 60 percent slide in global crude oil prices.
Despite CSX CEO's Confidence, US Oil Railcar Rates Have Crashed To 3 Year Lows - Two weeks ago, rail freight transportation company CSX's CEO Michael Ward stated 'unequivocally' that as far as the movement of crude by rail he has "not seen any changes," suggesting everything's fine down to $30-35 oil and "expected no impact on crude shipments." It appears he may have been somewhat careful with the truth as Reuters reports, while overall oil-train traffic remains near record highs, the shadowy industry that deals in the specialized 87-tonne crude carriers has seen monthly lease rates plunge to $1,300 late last month from a high of $2,450 about year earlier with the rates at their lowest in about three years. Even worse, railcar construction has surged amid the mal-investment boom exaggerating the over-supply, with one trader noting brokers were offering cars at spot rates of as little as $500 a month compared with $4,000 a year ago.
Schlumberger To Retake Oil Services Crown With New Deal -- Schlumberger Ltd.’s move to buy nearly half of Eurasia Drilling Co. (EDC), Russia’s largest oil drilling concern, will cost it about $1.7 billion and perhaps a few sleepless nights over the prospect that Western sanctions may eventually apply to the new acquisition. But the American oil services giant also just may have found a genuine bargain. Houston-based Schlumberger’s decision to buy 45.65 percent of EDC comes at a time when the European Union and the United States have imposed stiff economic sanctions on Russia for its support of separatist fighters in neighboring Ukraine. Under the sanctions, Western energy companies may not help specific Russian companies explore for oil in the Arctic, in deep water or in underground shale. But neither EDC nor its largest shareholders, CEO Alexander Djaparidze and Alexander Putilov, are targets of the sanctions so far. Still, if the East-West tensions don’t ease, the sanctions could expand, as they already have in the past year. Then there’s the 50 percent-plus plunge in oil prices over the past seven months, contributing to the risk Schlumberger faces in buying such a large stake in EDC. Despite this low price, Russian companies are still producing oil prodigiously, even though they face the risk that many wells, especially older ones, may cease to be profitable if prices keep falling and/or stay low for a long period before stabilizing.
U.S. Supply Growth To Halt This Summer: Everyone knows it by now but the growth in domestic US oil production has been truly astonishing. Spurred on by high oil prices and easy credit, oil companies in Texas and North Dakota have been drilling like crazy and the result has been an inexorable rise in US domestic production. What is remarkable is that almost all of the growth in production has been recorded in just six states, Texas, North Dakota, Oklahoma, New Mexico, Utah and Colorado. Source EIA This chart shows US domestic production from 1981 to 2014 and the upturn in production is striking. Even more dramatic when you focus in on just those six states. In 2008, just before the crash, there were almost as many rigs working in these six states as have been working there over the past three years, but back then the growth in supply was positively anaemic. Now, it seems as if the folk running these crews have really got their eye in, and lately, with around 1500 rigs drilling, annual growth has averaged about 30%. That's astonishing. There is obviously a correlation between rigs working and supply growth, but lately that correlation has changed.Back when shale wasn't even a gleam in Harold Hamm's eye, when about 600 rigs were working all the decent drilling locations were being snapped up. Adding more rigs in the pre-shale era didn't do anything for production growth. Nowadays though, growth and rig count are very strongly correlated. I would guess that when the rig count falls to somewhere between 600 and 1,000 rigs growth will grind to halt.
IHS study suggests U.S. oil production to halt by mid-year - A new report released by Colorado-based IHS Energy suggests that oil production in the United States could come to a screeching halt by the middle of this year. According to the report, growth is still expected in the early months of 2015, but that momentum will begin to level off in the second half of this year amidst prices at lows not seen since the 2008 Great Recession. The report was based on an IHS study of 39,000 wells with the assumption that West Texas Intermediate (WTI) prices remained below $60 a barrel. At the time of writing this story, WTI crude oil sits at $51.74 a barrel. The study identified a wide range of break-even prices for U.S. crude oil production. In 2014, approximately a quarter of new wells had a breakeven WTI price of $40 or less. Nearly half of new wells in 2014 had a breakeven price of $60 or less. On the other side of the spectrum, nearly 30 percent of new wells had breakeven prices of $81 or higher. The break-even level is the WTI price needed to cover capital and operating costs and generate a 10 percent return. The study suggests that monthly average U.S. production at the close of 2015 is projected to be about half a million barrels per day above the January 2015 average, but nearly all of that growth will come in the first half of the year. By December 2015, U.S. oil production growth will have been flat for several months, according to the report.
Is Fracking Really Dying? - Two short years ago, industry analysts and television pundits were toasting North Dakota as the “Saudi Arabia of North America.” But the fracking rush that made the Peace Garden State the poster child of the U.S. energy boom has gone bust. North Dakota ’s numerous gas flares, even visible from the International Space Station, are flickering out as tens of thousands of energy workers are being given their pink slips. Many industry analysts say fracking is a victim of its own success, helping to drive oil prices so low it was no longer affordable to frack new wells. Others point to the drop in global demand, spurred by a slowdown in the Chinese economy, alternative energies and an American public that’s not only driving more fuel-efficient cars, but driving less. Most popular, perhaps, is the theory that the Organization of Petroleum Exporting Countries, led by Saudi Arabia, purposely sabotaged the U.S. fracking industry by maintaining its current production levels while global oil demand falls, causing prices to spiral downward. There is probably some truth to all three. The U.S. fracking industry, which hardly existed in 2008, doubled U.S. oil output in only six years. Because of fracking, last year the U.S. became the largest oil-producing nation, leapfrogging over Saudi Arabia and Russia . But fracking is expensive. While much depends on geology and geography, fracking companies need to fetch prices between $55 and $100 a barrel just to break even. As the price of oil is now at $44 a barrel — and threatening to drop even further — it makes little sense to develop or even operate these sites, many run by relatively small energy companies. Meanwhile, many OPEC nations, which mostly rely on less expensive and conventional extraction methods, can still continue making profits even at $30-35 a barrel.
U.S. Oil Workers Stage Largest National Strike Since 1980 - Oil workers in the U.S. began the largest national strike since 1980 on Sunday, after failing to agree on new labor contracts.The United Steelworkers Union (USW) called for about 3,800 employees to strike in nine sites across the country, affecting plants that account for 10% of the total U.S. refining capacity, reports Bloomberg.USW failed to agree on five contracts offered by lead negotiators Royal Dutch Shell PLC on behalf of several major oil companies including Chevron Corp. and Exxon Mobil Corp.When the current contract expired on Sunday, USW said it “had no choice” but to call the walkout after no further deal was reached.If a full strike of union workers is called, USW says it could disrupt as much as 64% of U.S. fuel production.Shell said it remained committed to reaching a deal with the union.But USW, which has been in talks since Jan. 21, feels the oil companies can afford to make the changes it is demanding, which include substantial pay raises and improved safety measures.
U.S. workers strike for second day at nine refineries; one to shut (Reuters) - Union workers were on strike for a second day on Monday at nine U.S. refineries and chemical plants as they sought a new national contract with oil companies covering laborers at 63 plants. The walkouts were the first in support of a nationwide pact since 1980 and targeted plants with a combined 10 percent of U.S. refining capacity. One of the plants, Tesoro Corp's 166,000-barrel-per-day Martinez, California, refinery, was being shut because it was in the midst of planned maintenance work. The other refineries appeared set to continue running normally as operators initiated contingency plans, calling on trained managers as replacement workers. U.S. gasoline and diesel fuel prices rose on Monday on concerns over supply, as well as a bounce in crude. true Talks broke down against a backdrop of plunging crude prices, down nearly 60 percent since June, prompting oil companies to cut spending. The United Steelworkers union (USW) said Royal Dutch Shell, the lead industry negotiator, halted negotiations early Sunday after the union rejected a fifth proposal from the company. Shell said it would like to restart talks. Shell activated a strike contingency plan at its joint venture refinery and chemical plant in Deer Park, Texas, to keep operating normally.
10% Of US Refining Capacity Offline After US Oil Workers Stage Largest National Strike Since 1980 -- It's not exactly the same as if Wall Street were to unionize and demand higher wages, but when US energy workers - supposedly the best paid profession away from those who BTFD or BTFATH for a living - go on strike, it is time to pay attention, which is precisely what happened yesterday afternoon, when US union leaders launched a large-scale strike at nine refineries after failing to agree on a new national contract with major oil companies. It marks the first nationwide walkout since 1980 and impacts plants that together account for more than 10% of US refining capacity. The United Steelworkers Union (USW) began the strike on Sunday, after their current contract expired and no deal was reached despite five proposals.
Oil up 11 percent after two-day rally; trade volatile on stock builds (Reuters) - Oil prices rose strongly again on Monday, tacking on a total of 11 percent over two straight sessions, as some investors bet that a bottom had formed to the seven-month long rout on the market even as others remained pessimistic. Benchmark Brent and U.S. oil futures swung in a band of about $4 a barrel, one of their widest in weeks, as near-term technical signals indicated further gains while fundamental data continued to weigh on the market. "We could get a pretty good bear market correction here to really mess up all the new shorts," said Walter Zimmerman, chief technical analyst at United-ICAP in Jersey City, New Jersey. true "In fact, at this point, I would rather just take profits on shorts and resell if the price low is broken, then just adding to shorts. I absolutely do not want to be adding to shorts down here." Zimmerman said Brent could rise to over $61 a barrel and U.S. crude above $59 as oil prices snap out of oversold territory for the first time in months on concerns that falling U.S. oil rig counts may rein in a market glut.
Oil prices up more as BP joins sector spending cuts (Reuters) - Oil rose more on Tuesday as BP said it will reduce capital expenditure, adding to cuts in investment in the sector and expectations that output will suffer and start to drain a glut. Oil has gained more than 15 percent since Thursday after data showed the number of U.S. drilling rigs had fallen the most in a week in nearly 30 years. Some investors are betting a floor has formed under the market's seven-month-long rout. BP Chief Executive Bob Dudley, tempered expectations of lower production, however, when he said on Tuesday that he expected U.S. oil output to rise until the summer of 2015 when it would flatten. true Brent crude oil futures LCOc1 were up $2.13 cents at $56.88 a barrel as of 1143 GMT. U.S. WTI futures were at $51.33 a barrel, up $1.76 cents. BP announced it would cut capital expenditure by 13 percent to $20 billion in 2015. Last week, Chevron (CVX.N) announced a 13 percent cut in capital expenditure to $35 billion. The announcement of capital expenditure cuts by major oil companies are helping support prices, said Michael Hewson, chief market analyst at CMC Markets. "We've seen a lot of oil companies announce significant cuts in capacity expenditure and reductions in rig counts. What you're getting at the moment is a paring back of expectations as a result of the measures being taken," Hewson said. "The seeds of an oil price recovery are being sown," Bernstein analysts said in a note, warning of downside risk to oil supply in places such as the Gulf of Mexico, the North Sea and Brazil, as companies cut costs in response to a fall of up to 60 percent in oil prices since mid-June.
Massive Crude Inventory Build Sends WTI Crude Plunging Back Towards $50 -- Against Reuters expectations of a 3.25 million barrel build, DOE reports a 6.3 million barrel build... Just 24 hours after Jim Cramer proclaimed, "this smells like a bottom" in crude oil, the crucial commodity (though it is unclear whether lower oil is good or bad today for now) appears to have flushed a few weak hands in a 3-day squeeze and 1430ET ramp-fest as price reasserts to the 'fundamentals' of over-supply and under-demand. WTI has plunged from over $54 at the NYMEX close yesterday to around $50 this morning...
EPA Critique Buoys Keystone Critics After Congress Backs Project - The U.S. Environmental Protection Agency will file a response to a federal study of the Keystone XL pipeline released a year ago, raising the hopes of critics who argue the findings understated the project’s climate risks. EPA Administrator Gina McCarthy said her agency will weigh in on the State Department review that largely blessed Keystone. The cross-border pipeline has become a flashpoint in a fight pitting energy development against environmental protection. President Barack Obama has vowed to reject the pipeline if it’s found to worsen climate change. “This EPA letter could be the path for Obama in deciding he doesn’t want this project,” said Bill Snape, an attorney at the Center for Biological Diversity, an environmental group critical of Keystone. “If the president is going to reject this pipeline, you would expect to see some reasoning for it in the EPA letter.” The pipeline, which would cross three states then connect in Nebraska to a link leading to the Texas coast, has divided the Congress in a debate over energy and climate that analysts say outstrips its relevance to either. The Senate Thursday joined the House to pass legislation that would approve the project without waiting for Obama’s decision, a measure he says he will veto.
EPA Confirms Keystone XL Fails President’s Climate Test -- The U.S. Environmental Protection Agency (EPA) drove what may prove to be the final nail in the coffin for the proposed Keystone XL tar sands pipeline in comments released today, linking the project to an expansion of the tar sands and a significant increase in greenhouse case emissions. As the Administration concludes its review of Keystone XL, the U.S. EPA’s critique of the proposed tar sands pipeline exposes the project’s impact on climate—an issue that President Obama said would be a threshold issue in deciding whether to allow the project to move forward. The EPA’s letter highlights the Department of State’s conclusion that at prices between $65 to $75 a barrel, “the higher transportation costs of shipment by rail ‘could have a substantial impact on oil sands production levels—possibly in excess of the capacity of the proposed project.'” Observing that the development of tar sands represents a significant increase in greenhouse gas emissions, the EPA’s comments lay the basis for Keystone XL’s rejection as failing the President’s climate test. In light of the EPA’s comments today, it is worth revisiting the terms of President Obama’s climate test for the embattled tar sands pipeline: “But I do want to be clear. Allowing the Keystone pipeline to be built requires finding that doing so would be in our nation’s interests. And our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution.” —President Barack Obama, Speech at Georgetown University,
January sees five major pipeline leaks - On Thursday, the Senate voted 62 to 36 to approve the Keystone XL tar-sands pipeline, which would move heavy crude oil across the Canada-U.S. border and down to Texas refineries and ports. Nine Democrats joined 53 Republicans in voting for the bill, which now must be reconciled with a House version before heading to President Barack Obama’s desk … and a promised veto.The pipeline needs White House approval because it crosses an international border, but perhaps odder than the futile effort of crafting legislation that is assured a veto is that the latest public push for the massive pipeline comes at the end of a month that has seen more than its share of serious pipeline accidents. “Maybe this is just how pipelines celebrate January, but all over the country, pipelines new and old are popping off like roman candles,” said MSNBC host Rachel Maddow. Maddow noticed, as did the residents of several states, that there have been five major pipeline ruptures this month. That we know of. The number of major oil- and gas- pipeline accidents has been steadily growing in recent years. A major accident is defined by the U.S. Department of Transportation as one in which a person is killed or hospitalized because of injury, an explosion or fire occurred, more than five barrels of liquid are released or the total cost of the response exceeds $50,000. In 2014, there were 73 major accidents, according to a review by the Associated Press — an 87 percent increase over 2009.
Is newly discovered Gulf spill oil stuck in the seabed? - Almost five years after the Deepwater Horizon disaster which plunged the Gulf of Mexico into economic and environmental turmoil, oil is still being discovered buried in the seabed. A recent study revealed that six to 10 million gallons of oil has settled into the floor of the Gulf. The author of the study, Jeff Chanton, is a professor of oceanography at Florida State University. ThinkProgress reported last week that Chanton was surprised there wasn’t more oil submerged in the sediment. “Everyone thinks oil is very buoyant and that it just floats on the surface,” he told ThinkProgress. In truth, many had observed crude oil clumping together on the surface, and eventually these clumps became heavy enough to sink on the sea floor. The initial Oil Budget Calculator issued by the federal government did not account for the possibility of finding crude in the Gulf’s depths. The oil’s presence just a few layers into the sediment poses a couple of primary problems. First, it’s accessible to aquatic life that occupies those layers.Chanton said the oil’s position on the sediment’s surface also means that it’s a part of the food chain: the worms and other benthic organisms that live on the seafloor and feed on sediments will ingest the oil, and the contaminants associated with the oil will be passed on to the creatures that eat the worms. That could be a long-term problem for the health of these deepwater Gulf fish, Chanton said. Shifts in sediment also pose a risk, as they could uncover the oil and release it back into the Gulf, exposing aquatic ecosystems to further danger.
Yet More BP Oil Found At Bottom Of Gulf - Scientists already have reported finding what they called a 1,235-square-mile “bathtub ring” of oil on the floor of the Gulf of Mexico left over from the huge 2010 BP oil spill. Now it appears this ring is part of a washroom set: A different team of scientists has found that up 10 million gallons of oil have created what can only be called a “bath mat” beneath the sediment of the gulf’s floor. First the ring. David Valentine and colleagues from the University of California at Santa Barbara wrote in theProceedings of the National Academy of Sciences in October 2014 that about 10 million gallons of the spilled oil settled on the gulf’s floor. Its size: about the size of the state of Rhode Island. But what about the rest? As much as 200 million gallons of oil were spilled after the Deepwater Horizon oil rig, owned by BP and Anadarko Petroleum Corp., exploded off the coast of New Orleans, killing 11 workers on the rig and injuring 17 more, and allowing oil to gush into the gulf for nearly three months. All that oil has been hard to find. But a team of scientists led by Jeff Chanton found between 6 million and 10 million gallons buried in the sediment at the bottom of the gulf about 60 miles southeast of the Mississippi Delta. Chanton is a professor of oceanography at Florida State University (FSU). Chanton and his colleagues, writing in the journal Environmental Science & Technology, says they determined how oil caused particles in the gulf to accrete, or clump together, then sink all the way to the floor of a body of water.
Gulf of Mexico to see 41.2 million-acre lease auction - As a part of its five-year offshore drilling plan implemented in 2012, the Interior Department has scheduled an offshore oil and gas lease auction for March 18. The Hill reports that the auction will include drilling rights for 41.2 million acres in the Gulf of Mexico. There will be 7,788 blocks of unleased areas in the Gulf which could yield as many as a billion gallons of oil and four trillion cubic feet of gas. The auction will take place in New Orleans, though leases are included off the coast of Mississippi, Alabama and Louisiana. Abigail Ross Hopper, the Bureau of Ocean Energy Management’s new director, called the Gulf an important part of the Obama administration’s energy strategy. In a statement, she noted, “As a critical component of the nation’s energy portfolio, the Gulf holds vital energy resources that can continue to generate jobs and spur economic opportunities for Gulf producing states, as well as further reduce the nation’s dependence on foreign oil.” With oil prices currently experiencing a rollercoaster ride near record lows, the outlook of the Gulf’s oil and gas prospects is unclear. However, companies looking to invest in Gulf typically look at the long-term benefits beyond what the industry hopes will be a brief drop in prices.
Obama's tax hike for oil and natural gas ruffles industry leaders - As a part of President Barack Obama’s budget proposal for the 2016 fiscal year, the president is calling for higher taxes on the oil and natural gas industry valued at roughly $95 billion in revenue. This is the sixth year in a row that similar tax hikes have been proposed. In a released statement, API President and CEO Jack Gerard claimed that the energy tax hike would hinder the very goals expressed in Obama’s recent State of the Union address. “Historically, raising taxes on energy raises costs for consumers,” said Gerard. “America’s oil and natural gas renaissance has done everything on the president’s State of the Union wish list for the middle class. We create well-paying jobs, build infrastructure with private dollars, generate billions of dollars in government revenue, support retirees, and help businesses grow with affordable and reliable energy. This industry is the poster child for middle class economics.” Industry leaders like Gerard are worried that while oil and gas prices remain fairly low on the world market, new taxes will discourage investments. According to a study issued by Wood Mackenzie, tax hikes on oil and natural gas could equate to decreased revenue for the government and fewer jobs offered. Additionally, the study also revealed that allowing more oil and natural gas development on federal lands and waters could create more than 1 million new jobs and raise $127 billion in government revenue in under a decade. “The United States is now the number one producer of oil and natural gas in the world. Tax increases would jeopardize America’s competitiveness as it would discourage future investment. We need policies that will encourage investment, and higher taxes are not the answer,”
"Drillers Are In Denial" Brynjolfsson Warns Crude Bounce Is "One More Head-Fake" -- The latest uptick in crude prices - Ostensibly, triggered by a notable drop in the Baker Hughes rig count - will be one more head-fake, a false breakout. Keep in mind, oil drilling rigs and oil wells are not the same thing. Armored Wolf's Jon Brynjolfsson expects global inventories to continue to build until at least June. Drillers seem to be in denial, they fail to acknowledge that as long as inventories are building toward untenable levels, there will be extreme pressure on spot crude prices. What they don’t seem to realize is that absent a universal suppliers’ cartel (which OPEC clearly is not, because its members are autonomous, and many of the largest producers, including Norway, Russia, and US are not even members), high social break even prices incentivize individual producers to pump more, not less, oil at low prices!
News Release - Baker Hughes Announces January 2015 Rig Counts: -- Baker Hughes Incorporated (NYSE:BHI) announced today that the international rig count for January 2015 was 1,258, down 55 from the 1,313 counted in December 2014, and down 67 from the 1,325 counted in January 2014. The international offshore rig count for January 2015 was 314, down 24 from the 338 counted in December 2014, and up 12 from the 302 counted in January 2014. The average U.S. rig count for January 2015 was 1,683, down 199 from the 1,882 counted in December 2014, and down 86 from the 1,769 counted in January 2014. The average Canadian rig count for January 2015 was 368, down 7 from the 375 counted in December 2014, and down 136 from the 504 counted in January 2014. The worldwide rig count for January 2015 was 3,309, down 261 from the 3,570 counted in December 2014, and down 289 from the 3,598 counted in January 2014.
US Oil Rig Count Plunges - Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. plunged by 87 this week to 1,456 amid depressed oil prices. The Houston firm said Friday in its weekly report 1,140 rigs were exploring for oil and 314 for gas. Two were listed as miscellaneous. A year ago 1,771 rigs were active. Of the major oil- and gas-producing states, Texas' count plummeted by 41, North Dakota dropped 11, New Mexico was down nine, Colorado fell eight and Oklahoma seven. Kansas and West Virginia each lost four, Ohio and Utah were down two apiece and Louisiana was off one. Alaska, Arkansas, California, Pennsylvania and Wyoming were unchanged.
U.S. oil rig count falls to lowest since Dec. 2011: Baker Hughes (Reuters) - The number of rigs drilling for oil in the United States fell by 83 this week to 1,140 - the lowest since December 2011 - a survey showed on Friday, a clear sign of the pressure that tumbling crude prices have put on oil producers. That was a ninth straight week of declines, oil services firm Baker Hughes Inc said in its widely followed report. Unlike last Friday, when U.S. oil futures jumped higher in the hour after the Baker Hughes report, ending up over 8 percent on the day, there was a more muted reaction this week with U.S. crude holding earlier gains of about 2 percent at $51.50 per barrel. The rig count is down 29 percent from its October peak, although many analysts expect further reductions as firms slash spending plans. "The count is continuing to fall in direct relation to exploration and production companies' reevaluation of the economics and capex budgets," . The number of oil rigs has fallen in 14 of the last 17 weeks since hitting a record high of 1,609 in mid-October. "The drop was consistent with the recent velocity of rig count declines and is about in line with our expectations,"
US Rig Count Collapse Accelerates, Production Stays High -- The worldwide rig count ended January at 3,309, down 261 from December but it is the US and Canada that is dominating that collapse. Following last week's all-time record absolute drop of 94 rigs (over 7%, most since APR09), the oil rig count dropped for the 9th week in a row (down another 83 to 1140 rigs - down 27% in last 9 weeks) as it tracks the 4-mo lagged oil price perfectly. The Permian basin saw the biggest cut in rig count. This is the lowest oil rig count since Dec 2011 (down 19.5% YoY) and lowest total rig count in the US since March 2010 - down 25% in the last 9 weeks). Hopes of production cuts are simply wrong as the last 4 times that rig counts have dropped, no production cuts have occurred.
What The Rig Plunge Really Means For The Price Of Oil - The devil is in the details: The market is likely too excited about falling rig counts. Even after the natural gas experience, the market fails to appreciate that the relationship between rig count and production can be deceptive. Headline rig count declines may look impressive, but as we look at the data, much of the drop in oil rig count has come in low yielding vertical/directional rigs – i.e. the low-hanging fruit. Even within horizontal rigs, much of the decline has come in lower performing plays or lower tier counties within high quality plays. In some cases, we’ve seen a reallocation of rigs between counties within plays. This was particularly prominent in Midland last week. The most productive rigs will likely remain as long as possible, esp where hedges are in place, until redeterminations or cash flow issues force additional cuts.
US Production and Imports - Even before the shale revolution got underway, US net imports were falling. The data below is from the Weekly Petroleum Status Report and is in thousand barrels per day. This chart shows net crude oil and petroleum products imports. Net imports peaked in 2006 and started to fall in earnest in 2008. They continued to fall until 2010 when the three month average increased sharply and the annual average leveled out for about a year. Then as the Light Tight Oil revolution got underway in 2011, net imports started to fall again. The chart above shows net imports bottom out in late spring, March and April and heads back down again in June. Below is the last year of that chart amplified. But in December of 2014 net imports broke their trend and headed sharply up, about four months earlier than normal. Much of this increase in imports had to be caused by declining US production though part of it could be caused by increased consumption because of low prices. The EIA’s Petroleum Supply Monthly is out with US and individual states production numbers for November 2014. Below are some charts from that data. The data is in thousand barrels per day with the last data point November 2014. US, down 31 kbd to 9,020,000 bpd. This is the first time the US has had a monthly decline that wasn’t blamed on a weather event in quite a while. Texas, up 48 kbd to 3,403,000 bpd. Because of Texas’s reporting procedures the EIA has to guess at their oil and gas production. And their guess is that Texas oil production is behaving as if oil were still $100 a barrel. I believe there will be some big revisions in this data in a few months. North Dakota, up 3 kbd to 1,187,000 bpd. At least they get North Dakota right. Alaska, up 17 kbd to 517,000 bpd. Alaska always bottoms out in August, for summer maintenance, and peaks in December. The spike down in January 2011 was due to the pipeline leak and had to shut down for several days.
A Primer on the Oil Situation - The long decline in oil prices from July 2014 to the present has several causes. Due to faltering major economies (e.g., EU, Japan, Russia, and a slowing of growth in China), the demand for oil diminished. At the same time, American shale oil production was booming. The result was abundant oil in a depressed market for oil, and those circumstances led to a long tumble in oil prices, which may continue. Many enterprises, profitable at $100/bbl., were unable to continue at substantially lower oil prices. The extent of fracking is declining for economic reasons. However, the only because Richard Cheney, VP under President George W. Bush, pushed through laws in 2005 which exempted oil and gas production from these existing laws: Clean Air Act, Clean Water Act, Safe Drinking Water Act, National Environmental Policy Act, Resource Conservation and Recovery Act, Emergency Planning and Community Right-to-Know Act, the Superfund act, and from various toxic reporting requirements (Source Exemptions for hydraulic fracturing under United States federal law) Without those exemptions, fracking would not have been possible.Fracking is horribly polluting via many carcinogenic agents (e.g., benzene and formaldehyde) and a laundry list of other toxics. Fracking sites are not monitored for environmental degradation, as they are exempt from regulation.Fracking is also water-intensive, using an average of about 20 million gallons of water (plus as many as 50 different chemical additives) per well. The water – now more toxic – must be removed from the well and disposed of safely – though there are no known purification processes.People who live and work near fracking sites are often chronically ill from the fumes, and families are often unable to sell and move – most people these days won’t buy a home near a fracked well because of toxics, so families essentially become prisoners in their homes. That we permit fracking is testimony that, as a nation, we value using shale oil more than we value protecting our families from living and working in extremely toxic/carcinogenic conditions.
The capital markets versus the more adventurous drillers - FT.com: When things are bad in the oil and gas business, the operators tell each other that “the cure for low prices is low prices”. Low prices for the product encourage more use, and discourage drilling and associated development, so supply falls and then prices come back. That may not work so well this time for the US gas industry. The gas-directed exploration and production people in the US industry were hit by price declines much earlier than the oil producers. The Henry Hub futures price strip only hit bottom in the spring of 2012, and has been fitfully recovering since then. Still, even as the oil price drifted down over late summer, and then plunged from October on, the gas people thought they could see the end of their own tunnel. They had what looked like a solid international arbitrage working for them: with gas prices in Asia and continental Europe linked to oil, the US producers had enough of a cost advantage to justify the construction of liquefied natural gas export facilities, along with the associated pipelines and processing plants. These LNG export terminals would start to buoy the US gas price by 2016, just in time to keep the exploration and production people a step ahead of the junk bondholders’ lawyers. The US would be an energy export superpower, and could continue to put off devising a coherent foreign policy. Unfortunately for those depending on this vision, there appears to have been a capital markets supercycle within which the energy supercycle has been spinning. Over the past weeks, there is evidence that the low world oil prices could prolong the period of low US gas prices. Sometimes, it seems, low prices do not cure low prices; they make them lower.
BIS: There’s an oil-debt-dealer nexus -- FT Alphaville has written before about how the pronounced collapse in the price of oil appears very reminiscent of the disintegration in the value of a certain subprime financial asset; both have been swift, disorderly and self-reinforcing. A new report from The Bank for International Settlements emphasises the latter dynamic by drawing a connection between the vast sums of money energy companies have borrowed from investors in recent years as well as the retreat of traditional dealers from certain commodities-related transactions. The new dynamic has imparted a swift and sudden forcefulness to the recent price action in the crude price that goes beyond the effects of a simple change in production and consumption of oil. Here’s what they say:“One important new element is the substantial increase in debt borne by the oil sector in recent years. The greater willingness of investors to lend against oil reserves and revenue has enabled oil firms to borrow large amounts in a period when debt levels have increased more broadly. Issuance by energy firms of both investment grade and high-yield bonds has far outpaced the already substantial overall issuance of debt securities.” Against this background of high debt, a fall in the price of oil weakens the balance sheets of producers and tightens credit conditions, potentially exacerbating the price drop as a result of sales of oil assets (for example, more production is sold forward). Second, in flow terms, a lower price of oil reduces cash flows and increases the risk of liquidity shortfalls in which firms are unable to meet interest payments … An additional factor that may amplify the oil price decline is that many oil firms located outside the United States have nevertheless borrowed in US dollars [see left-hand panel of Graph 2 below]. This is a key point, because a back-footed energy company with a weak balance sheet is not going to cut back on its physical production until it absolutely has to. It has bills to pay. Big ones. Energy companies are likely to sell assets or seek extra financing in order to pay those bills. If they’re locked out of debt markets they’re likely to seek additional financing that will likely come on punitive terms. In any case, the motivation for many energy firms is to hang on to production for as long as possible, reinforcing the oil price slide.
Nascent U.S. oil export boom stalled by topsy-turvy market - Just as the Obama administration is starting to pull down barriers to exporting an abundance of U.S. shale oil, the topsy-turvy global oil markets have thrown up new ones. The stunning 60 percent collapse in oil prices since last summer has upended the relationship between regional markets, briefly pushing U.S. benchmark prices above those for global Brent crude – and effectively closing the arbitrage for exporting processed condensate just as U.S. export regulators began giving some firms the green light to press ahead. For the moment, that’s proving to be a less profitable prospect than many expected. Enterprise Products Partners, which had gained a jump on rivals with export clearance last summer, failed to award a one-year tender to sell processed condensate after a round of low bids, U.S. and Asian trade sources said last week. “The export boom has been postponed,” said John Auers, a consultant at Turner, Mason & Co. in Dallas. It’s been a tumultuous period for would-be exporters. Just a few months ago, dozens of producers were locked in a federal queue waiting for confirmation that they could press ahead with sales of lightly processed shale condensate. In late December, U.S. regulators began giving some firms such as Royal Dutch Shell the green light to go ahead. But as oil prices collapsed, some who secured the sought-after exemption from the four-decade-old export ban are finding it more difficult to find buyers for their crude.
Strikes The Latest Threat Facing U.S. Oil Industry - Workers are on strike at nine oil refineries and chemical plants around the United States in the largest such job action in 35 years. Members of the United Steelworkers union (USW) who are employed by more than 200 US oil terminals and pipelines as well as refineries and chemical plants struck the nine facilities on Feb. 1 after negotiations with several oil companies failed to end in an agreement on wages, safety and benefits. The contract covers 30,000 hourly workers. The negotiations had begun Jan. 21 with a settlement deadline at midnight, Jan. 31. The USW had rejected five offers by the companies lead negotiator, Royal Dutch Shell, the Anglo-Dutch oil giant representing several large oil companies operating in the United States, including Chevron Corp. and Exxon Mobil Corp. “Shell refused to provide us with a counter-offer and left the bargaining table,” USW International President Leo Gerard said. “We had no choice but to give notice of a work stoppage.” From Shell headquarters in The Hague, Netherlands, company spokesman Ray Fisher said Shell was eager to resume negotiations. “We remain committed to resolving our differences with USW at the negotiating table and hope to resume negotiations as early as possible,” he said. Although picket lines were set up at nine of the companies’ facilities, only one has restricted production. But a walkout affecting all 200-plus facilities would stall up to 64 percent of American fuel production.
Canada Mauled by Oil Bust, Job Losses Pile Up – Housing Bubble, Banks at Risk - Ratings agency Fitch had already warned about Canada’s magnificent housing bubble that is even more magnificent than the housing bubble in the US that blew up so spectacularly. “High household debt relative to disposable income” – at the time hovering near a record 164% – “has made the market more susceptible to market stresses like unemployment or interest rate increases,” it wrote back in July. On September 30, the Bank of Canada warned about the housing bubble and what an implosion would do to the banks: It’s so enormous and encumbered with so much debt that a “sharp correction in house prices” would pose a risk to the “stability of the financial system” Then in early January, oil-and-gas data provider CanOils found that “less than 20%” of the leading 50 Canadian oil and gas companies would be able to sustain their operations long-term with oil at US$50 per barrel (WTI last traded at $47.85). “A significant number of companies with high-debt ratios were particularly vulnerable right now,” it said. “The inevitable write-downs of assets that will accompany the falling oil price could harm companies’ ability to borrow,” and “low share prices” may prevent them from raising more money by issuing equity. In other words, these companies, if the price of oil stays low for a while, are going to lose a lot of money, and the capital markets are going to turn off the spigot just when these companies need that new money the most. Fewer than 20% of them would make it through the bust.
Arctic Oil On Life Support -- Oil companies have eyed the Arctic for years. With an estimated 90 billion barrels of oil lying north of the Arctic Circle, the circumpolar north is arguably the last corner of the globe that is still almost entirely unexplored. As drilling technology advances, conventional oil reserves become harder to find, and climate change contributes to melting sea ice, the Arctic has moved up on the list of priorities in oil company board rooms. That had companies moving north – Royal Dutch Shell off the coast of Alaska, Statoil in the Norwegian Arctic, and ExxonMobil in conjunction with Russia’s Rosneft in the Russian far north. But achieving the goals of tapping the extensive oil reserves in the Arctic has been much harder than previously thought. Shell’s mishaps have been well-documented. The Anglo-Dutch company failed to achieve permits on time, had its drill ships run aground, and saw its oil spill containment dome “crushed like a beer can” during testing. That delayed drilling for several consecutive years. However, the first month of 2015 has darkened Arctic dreams even further. Oil companies are scratching their heads trying to figure out how to deal with a collapse in oil prices, now below $50 per barrel. With virtually every upstream company around the world slashing spending, it is the highest-cost and riskiest projects that are getting scrapped first. After having watched Shell fumble its Arctic campaign, Statoil put its drilling plans off the coast of Alaska on ice. But now with rock-bottom oil prices, Statoil has even shelved Arctic drilling plans in its own backyard.
Scotland adds to growing list of places that ban fracking - Scotland banned hydraulic fracturing Jan. 29, implementing an indefinite moratorium while the government studies environmental and health impacts of the oil and gas drilling technique, according to the BBC. Scottish officials told the BBC they’ll investigate concerns over the technique ranging from earthquakes to water pollution. The Midland Valley shale play in central Scotland is estimated to hold about 80 trillion cubic feet of gas and 6 billion barrels of oil.The nation joins a small but growing group of U.S. communities and international governments that have prohibited fracking. The Scotish ban came two days after a similar ban was voted down in the United Kingdom. Fracking is largely responsible for boosting U.S. production to record levels.In the United States, voter resolutions for the Nov. 2014 midterm elections led to fracking bans in Denton, Texas, two California counties and an Ohio city. Boulder County, Colorado, extended a 2012 ban pending the release of a National Science foundation study on environmental effects, slated for release in 2017.In December, New York became the first state to prohibit fracking, following a four-year statewide moratorium on the practice. Fracking is also currently prohibited in Germany, Northern Ireland, France and Bulgaria.
Leaked Document Could Shatter UK Shale Dreams -- U.K. Prime Minister David Cameron’s hopes for a British-style shale gas revolution recently took a major hit. Cameron has promised that his government will be “going all out” to develop Britain’s shale gas resources, which he argues will create new jobs and cut dependence on imported gas. But a committee made up of members of parliament (MPs) from several political parties issued a damning new report on the state of “fracking” in the United Kingdom. The Environmental Audit Committee published a report that called for a 30-month moratorium on fracking, citing “huge uncertainties” regarding the environmental fallout from widespread drilling. On top of the usual controversies over water supplies, the report says that allowing fracking will upend British climate change goals. “Ultimately fracking cannot be compatible with our long-term commitments to cut climate-changing emissions unless full-scale carbon capture and storage technology is rolled out rapidly, which currently looks unlikely,” MP and Committee Chair Joan Walley said. “There are also huge uncertainties around the impact that fracking could have on our water supplies, air quality and public health.” The committee report was a political bombshell in London, but the House of Commons overwhelmingly shot down an amendment – by a vote of 308 to 52 – on January 26 that would have banned fracking outright.
Fracking war: North Africa - At the beginning of January, anti-fracking protests took a serious turn in In Salah, a small town in Algeria, and spread to neighboring towns in the area. Despite the government’s announcement that further expansion in developing shale gas reserves has been halted–due to public concern of the environmental impacts–protests have continued on. In Salah is located 750 miles south of the capital of Algiers and is home to about 36,000 people. Since January 1st, residents protesting against the government’s proposed plans to use fracking to extract shale gas in the region have been relentless. During the week of January 19th, protests expanded to other cities across southern Algeria and into the northern coastal cities of Algiers and Oran. In Algeria, oil revenue accounts for 60 percent of the national budget. The government has been attempting to diversify the country’s income stream by developing unconventional resources, such as shale gas. Algeria’s government says that shale gas operations will aid the country’s energy transition. During December 2014, Algerian energy minister Youcef Yousfi said that shale gas test drilling in the Ahnet Basin, located 20 miles south of In Salah, showed promising results and deemed the first fracking operation very successful. However, in July 2013, Algerian Prime Minister Abdelmalek Sellal announced that the government was only conducting surveys, and fracking would not occur until at least 2024. Many residents are worried that with Yousfi announcing the success in the test drilling, fracking will start before 2024, even though the prime minister stated it wouldn’t. According to the U.S. Energy Information Administration, Algeria is ranked third for recoverable shale gas resources, falling behind only China and Argentina.
This New Project Changes The Global Oil Market: We saw one of the most significant shifts in a long while for energy markets last week. With a key pipeline opening that will radically change global flows of crude oil. The project in question is the China-Myanmar oil pipeline. Which Chinese state media said on Thursday has now opened for test runs. The pipeline is one of the most ambitious constructions the global energy sector has seen. Running 771 kilometres from Myanmar’s western coastal port of Kyaukphyu, across the entire length of that country, and into the Chinese city of Kunming. The diagram below from Stratfor shows the route. The line has been an ongoing project for years now. With construction having begun in 2010, and been completed in May 2014. A twin natural gas pipeline that’s also part of the development was put into operation last year. The size of the pipeline is notable. But its location is even more significant when it comes to the worldwide movement of oil. The pipe provides the first overland access between China and shipments of crude sailing from the Middle East. Up until now, Middle East tankers were forced to sail through the Straits of Malacca between Indonesia and Malaysia in order to reach Asian buyers. A route that’s noted to be treacherous, and which adds almost two weeks to the journey for an average Saudi Arabia-to-Shanghai shipment.
Saudis Re-Unleash Oil Weapon, Slash Asia Prices By Most In 14 Years -- "This is further evidence that they are hellbent on protecting their market share in China," warns one strategist as just when US talking-heads thought things were 'stabilizing' Saudi Aramco slashes its official selling price for Arab Light crude by 90 cents to $2.30 a barrel less than Middle East benchmarks - the biggest discount in 14 years. As Bloomberg reports, the desert kingdom is continuing to fight for market share, and using the oil weapon by "trying to stay competitive in what is the biggest area of growth," as Middle Eastern producers are increasingly competing with cargoes from Latin America, Africa and Russia for buyers in Asia.
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