the ongoing drop in the price of oil had to have been the most important fracking related story this week, not because it fell by that much, but because the price of oil has been unable to find an equilibrium for much more than a day or two at a time since late June...this week the price deterioration continued with very little volatility, suggesting that even at these low levels, there aren't many speculators looking at oil as a bargain, even at today's low prices...after closing last week at a price of $47.12 a barrel, the near term contract for WTI, the US crude oil benchmark, headed down on Monday on news that Saudi Arabia and Iraq continued to pump near record levels and closed Monday at $45.17 a barrel; it was then up a bit on Tuesday, but went back in the tank on Wednesday when weekly oil production data was released, showing elevated gasoline inventories and another rebound in US output...prices then continued to fall the rest of the week, and closed down 79c at $43.87 a barrel on Friday, after Baker Hughes data showed US drillers were still adding oil rigs...
as a lot has happened with the price of oil since the last time we discussed it, we'll include a graph of US oil prices over the past year, so you can all see what has been happening...the graph below shows the past year's track of the near term contract price per barrel of the US benchmark oil, West Texas Intermediate (WTI), sitting at or to be delivered to the oil depot in Cushing Oklahoma...we can see that oil had been falling most of last summer, even as drillers were still adding rigs and expanding production....and we know that oil drilling continued into the fall, with the rig count peaking in October, even as oil prices slipped below $80 while the global surplus was developing...we can then see the first collapse of prices beginning in the last week of November, when the price of oil fell from $78 to $65 in the days immediately following the OPEC decision to continue their level of production...oil prices then fell below $45 a barrel in intra-day trading in mid January, a level at which 97% of US shale wells became unprofitable, before climbing back up above $58 again in February...they touched the January lows again in March before moving back up to near $60, in a range where they stayed for most of the second quarter...but even at those prices, most independent drillers reported losses during that period, and now they've fallen another 28% from the $61.01 price of June 23rd...
in addition to the companies that reported lower 2nd quarter earnings or losses last week, a handful of companies also reported their 2nd quarter results this week; Marathon Oil posted a $386 million loss for the second quarter. even after "dramatic reductions in production costs and across-the-board spending cuts", more than reversing the $360 million profit they posted during the same time period last year; Rice Energy, who drills for oil and gas in the Marcellus in southwestern Pennsylvania and in the Utica in Ohio, reported a loss of $69.7 million in the 2nd quarter, worse than the $7.9 million, or 6 cents per share loss they reported in the 2nd quarter of 2014; Rex Energy, another Pennsylvania and Ohio driller, recorded a loss of $155.2 million, or $2.87 per share, for the second quarter, as their revenues fells 37% from the same period last year, even though their production rose by 6%; Continental Resources Inc, the second-largest oil producer in the Bakken shale, reported their net income dropped 99%, from $103.5 million last year to $403 thousand this year, even as their average daily production increased 35%, and Gulfport Energy reported a net loss of $31.3 million even as their production increased by 196% compared to the second quarter of 2014...and remember, all those losses were incurred when oil was within a few dollars of $60 a barrel..
in covering the fracker's 2nd quarter earnings and losses last week, we noted that Chesapeake Energy, the 2nd largest natural gas producer in the US and operator of more than half of Ohio's wells, had suspended paying their dividend, even after they had paid one through the last 14 years of their mostly cash flow negative history; on Wednesday they reported a loss of $4.15 billion, or $6.27 per share, for the 2nd quarter, in contrast to the profit of $145 million they made in the 2nd quarter last year...much of their 2nd quarter loss resulted from a $4.02 billion write-down on several gas & oil properties that they'd overpaid for during the McClendon era, but even excluding the write off, they still showed losses of $83 million in the quarter on revenues of $3.03 billion, which were 41.1% lower than a year earlier...
responding to their poor cash flow position and the steep drop in oil & gas prices, Chesapeake has now announced that they'll be selling some of the million acres of Ohio Utica shale land that they have under lease, which have the potential for thousands of shale wells...although they haven't specified which land they'll be selling, the Columbus Business First’s article on the asset sale quotes their top Utica executive citing 300,000 acres of dry-gas heavy Belmont and Jefferson county land as the part of their portfolio that's "a bit asset-long"...this isn't the first time that Chesapeake been so squeezed as to need to divest themselves of potentially profitable properties; in October, we reported they were forced to sell 413,000 acres with 1,500 wells in West Virginia and southwest Pennsylvania to their rival Southwestern Energy Corp for $5.38 billion, in order to raise enough cash to keep their Ohio operations running...
in another sign that they're still in deep trouble, they also announced they'll be putting their Ohio natural gas production on hold until such time as the Ohio Pipeline Energy Network is completed, a project that will allow them to ship Ohio gas to the Gulf Coast, where there are several LNG export terminals under construction on existing regasification sites already in operation, and many more in the planning stages...that Chesapeake is waiting for the pipelines before they sell their gas should give us an idea of how bad the gas glut has become in these parts, and how important it is to the frackers that they get that pipeline infrastructure in place in order to move their products out of our area...as we've pointed out previously, Marcellus frackers have been netting less than $2 per mmBTU at the wellhead for their natural gas; without pipelines, Utica gas can't be yielding much more...
the push to put those pipelines in place was underscored this week when the developers of the Nexus Pipeline filed suit against 91 residents of Summit county seeking a restraining order that would allow pipeline surveyors, who have been accompanied by off-duty cops, on their property to complete surveys for their 1.5 billion cubic feet per day pipeline; how they think they can force that through when they have yet to get FERC approval for the pipeline that will impact 3479 Ohio properties is beyond me, but that's what they're trying to do...this would seem to be an issue area politicians should be interested in intervening in; this week Columbia Gas of Ohio announced that their typical budget-billing customer would see nearly a 20% cut in their gas bill this winter, and it's almost certain that industrial customers and utilities such as AEP and First Energy, who are mandated by Obama's energy plan to switch away from coal, will be getting similar discounts on the natural gas that they'll use..so keeping that underpriced gas in our area instead of sending to the Gulf to be exported to Europe and Asia should be in everyone's interest; the out of state pipeline companies should have little political pull..
as we noted earlier, US field production of crude oil rose in this week's report, from 9,413,000 barrels per day in the week ending July 24 to 9,465,000 barrels per day in the week ending July 31st; while that's still almost 1 1/2% off the early June peak, it's still 12.0% higher than our output during the same week last year...meanwhile, our imports of crude oil also fell for the 2nd week in a row, from 7,545,000 barrels per day the prior week to 7,180,000 barrels per day in the week ending July 31st, still, over the last four weeks, crude oil imports averaged 7.5 million barrels per day, just 0.4% less than the same period last year...in addition, last week saw another drop in crude oil crude oil inventories in storage, from 459,682,000 barrels on January 24th to 455,275,000 barrels as of July 31st...that's still more than 24.5% higher than the amount of crude we had stored in the same week last year, and as you should all know by now, the highest for this time of years in the 80 years that such records have been kept....so, with imports and inventories down and production up just a bit, where did that oil go? through our refineries; in the week ending July 31st, U.S. crude oil refinery inputs averaged a record 17,075,000 barrels a day, as the weekly Petroleum Status Report (62 pp pdf) reports our refineries were operating at a post recession record 96.1% of their capacity last week, as gasoline production averaged 10.0 million barrels per day...and we have a chart for that, too, since it is at a new record high…
the above chart was featured in the Today in Energy Report of August 7th from the US EIA, wherein i've accidentally included a clip of their opening lines, telling us that US refineries have been processing over 17 million barrels per day for the past 4 weeks, which has never happened before in the time they've kept those records...what the chart shows in the grey band is the range of crude processed by US refineries for any given date over the 5 year period from 2010 to 2014, with the dashed line indicating the average of that; then the dark blue line shows the daily refinery inputs for 2014, which obviously forms the top band of the 5 year range, and the red line indicates refinery inputs so far for 2015...so what the chart in effect shows is that every day in 2014 set a new 5 year record for refinery throughput, and so far every day in 2015 topped 2014...while there were a few weeks in the 2004 to 2006 period where refinery inputs topped 16 million barrels per day, the last month is the first time we've seen the 17 million barrel per day clip breached..
with the refineries running flat out as they have been, refined products supplied have also been above their average range...in the week ending July 31st, total products supplied averaged 20,338,000 barrels per day, up from 19,633,000 barrels per day in the same week a year ago...gasoline output has averaged 9.5 million barrels per day over the last 4 weeks, up by 5.4% from the same period last year...total motor gasoline inventories increased by 0.8 million barrels last week, although like stocks of crude oil, they've been trending lower in the summer driving season, and are only up 1.3% from a year ago...inventories of distillate fuel oil are up 15.9% from the same week last year, inventories of kerosene type jet fuel are 26.8% higher, and inventories of propane/propylene, a petrochemical feedstock, are 32.0% higher than they were on August 1st last year..and we're also consuming more; our consumption of gasoline was up 2.9% in the first 5 months of this year as cumulative travel for 2015 was up by 3.4% and vehicle miles driven in the US over the prior year topped 3 trillion at 3,080,600 million, up from 2,996,249 million in the year ending May 2014...we're also exporting more too; in the week ending July 31st, our total exports of crude oil and petroleum products was at a record 4,460,000 barrels per day, 17.2% higher than in the same week a year ago...
Ohio to fight Obama plan curtailing coal power plants -- Ohio and other states that rely heavily on coal for electricity will have to make major changes in how they power their homes and businesses over the next 15 years under President Barack Obama’s unprecedented plan to drastically curb greenhouse-gas emissions. Obama said on Monday that the average household would save $85 a year on energy costs, while dramatically reducing the types of greenhouse-gas emissions that lead to harmful climate change. Scientists overwhelmingly agree that manmade changes already are causing severe storms, droughts and rising sea levels. Coal-industry leaders and Ohio officials said they plan to sue to prevent the rules from taking effect. Obama’s Clean Power Plan includes more-stringent controls on carbon dioxide emissions than initial plans proposed in 2014. The finalized plan calls for a 32 percent cut in overall carbon dioxide emissions by 2030 from 2005 levels. Initial plans unveiled last year called for a 30 percent cut. Each state will have to make different cuts to meet that mark. Under the 2014 proposal, Ohio would have had to cut 28 percent of its greenhouse-gas emissions from power plants. It is unclear what the plan unveiled on Monday will mean for Ohio. But Ohio will have until September 2018 to create a plan, two years longer than last year’s proposal called for. Under the finalized plan, each state must hit its interim target by 2022 and its final target by 2030. Murray Energy, an Ohio-based underground coal-mining company, already had filed five lawsuits challenging last year’s proposal. Ohio and several other states joined Murray’s lawsuits.
Columbia Gas average 'budget' rate falls to $63 - The price of heating your home this winter is expected to be lower than last year. Columbia Gas of Ohio said on Monday that the typical budget-billing customer will pay $62.88 a month over the next 12 months for natural gas. That’s down from the $80 a month average last year. The decline reflects cheaper natural-gas prices as supplies have grown, the company said. Natural-gas prices that were averaging more than $4 per 1,000 cubic feet of gas in 2014 have now dipped to about $3, said Michael Anderson, Columbia’s gas supply and market expert. He credited the drop in price to the success of drilling in the nearby Utica and Marcellus shale areas, he said. “With the kind of phenomenal success of the Marcellus shale with the Utica shale, we have seen an enormous increase (in supply) in the U.S.,” he said. “Most of that increase is centered right here in the Appalachian basin.” Gas prices were at a record high as recently as 2008.
Nexus Pipeline names 91 in Summt County access lawsuit -- Jane Carl of New Franklin says she is convinced that natural gas pipelines are a risk and are dangerous. Tim Samples says he doesn’t want a large pipeline on his 31 acres in New Franklin. Judy Knapp and Bobby Geer of Green twice allowed surveyors for the Nexus Pipeline on one parcel they own off South Arlington Road but denied access to parcels they own off Koons and Thursby roads. “It became a push, push, shove kind of thing,” Knapp of repeated access requests. They are among 91 residents of Green and New Franklin who were named defendants in a lawsuit filed Thursday file by Texas-based Nexus Gas Transmission LLC over access to properties. The company is seeking a temporary restraining order in Summit County Common Pleas Court to force property owners tp allow surveyors access to their land. There was no hearing on Thursday on the company’s request. The case has been assigned to Common Pleas Judge Mary Margaret Rowlands. Attorney David Mucklow, who has been fighting the pipeline, filed a 16-pare response to the comapny’s request. The pipeline company notified residents on Wednesday that it intended to take the legal action. The company said it needs access to the private property for the purpose of building the proposed $2 billion Nexus Pipeline that would cross northern Ohio to carry natural gas from the Utica Shale.
Athens citizen protests county charter -- A protest was filed last Wednesday against placing on the Nov. 3 ballot a proposal to turn Athens County into a charter government, with an anti-fracking “community bill of rights.” After an opposition group declined to file a protest with the Ohio Secretary of State’s Office via the Athens County Board of Elections early last week, Athens resident Joanne Prisley, along with local attorney Michael. M. Hollingsworth, on Wednesday went forward with a protest of their own. While the opposition group claimed to have been told they could only object to the number of valid signatures in favor of the proposal, the filing from Hollingsworth and Prisley doesn’t address the signature issue. Rather, it raises issues of unmet deadlines, concerns that the charter reaches beyond its scope, and includes unauthorized zoning regulations. The Ohio Secretary of State’s office, which acknowledged receiving the protest on Friday, has 10 days to respond on whether or not to let the issue go to the voters. While the Secretary of State’s office did not return a call requesting comment Friday, a local elections board employee said the office had contacted them requesting a copy of Athens County Common Pleas Judge George McCarthy’s ruling ordering the proposal be placed on the ballot. McCarthy issued his ruling after the Board of Elections initially rejected the proposal, not because petitions for the ballot initiative didn’t have enough valid signatures (they did), but because board members felt the proposal did not meet the minimum standards for proposing an alternative charter government for the county.
Athens County charter protest one of three to be decided - Ohio Secretary of State Jon Husted will not only rule on the validity of the proposed Athens County charter issue, but also similar issues from Fulton and Medina Counties. Husted has issued an advisory outlining the process that will be followed in reaching a decision on whether the proposed charters in the three counties will appear on the November ballot. Last month, the Athens County Commissioners unanimously voted — despite concerns voiced by Commission President Lenny Eliason — to send the proposed Athens County charter to the local board of elections for placement on the fall ballot. That prompted the filing of a protest with the elections board by Athens resident Joanne Prisley, which by law sent the matter to Husted to decide. The proposed charters in all three counties are nearly identical. All three seek to make it illegal in the counties to store, treat or dispose of waste from high-volume horizontal hydraulic fracturing (a type of fracking), including disposal by injection wells. Also, they seek to prohibit the use of water from the counties for high-volume hydraulic fracturing. However, the proposed charters in Fulton and Medina Counties include restrictions on oil and gas exploration, production and infrastructure not included in the proposed Athens County charter.
A response to a response... athensnews.com: In response to Dick McGinn’s op-ed on this page, I wanted to make a few quick clarifying points, without being argumentative. When I criticized the Center for Environmental Legal Defense Fund in my column July 30, I was not suggesting that the local Bill of Rights efforts had been “hijacked” by the Pennsylvania-based CELDF, or questioning the motives of local folks sincerely worried about oil-and-gas fracking and injection wells. I raised issues about the CELDF’s tactics, motives and legal arguments because the city and county Bill of Rights laws, advocated by citizen committees in the city and county, are based on a template (almost word for word) provided by the CELDF. That template does not have a winning record in Ohio and other courts across the country. In fact, it has a winless record according to the Reuters report of June 29. Any future court will rule on the CELDF-inspired language in the Bill of Rights ordinances for Athens city and county, and not the worthy intentions of the local groups advocating those laws. On the other hand, raising serious issues about the Bill of Rights approach should not be confused with a lack of concern over drilling activities in Athens County, especially injection wells. An Ohio Supreme Court decision last February suggested there might be a legal way to use zoning to reduce drilling-related threats to local water supplies and other natural resources. If effectively restricting injection wells and fracking is the goal, local efforts should be redirected toward strategies designed to have a fighting chance in Ohio courts.
Rex Energy posts loss as revenue drops - Rex Energy lost $155.2 million during the second quarter as revenue from the sale of oil and natural gas dropped, the company announced Tuesday in a press release. The loss works out to $2.87 per basic share. Rex Energy will hold a conference call with analysts Wednesday morning. The State College, Pennsylvania-based driller produced the equivalent of 206.8 million cubic feet of natural gas a day. That was 6 percent more than the first quarter of this year, and an increase of 61 percent over the second quarter of 2014. Rex’s production mix was 131.1 million cubic feet of natural gas per day and 12,600 barrels of oil equivalent per day of liquids. Those liquids — condensate, oil and natural gas liquids — accounted for 37 percent of the company’s production. Even with production up, Rex had just $45.8 million in operating revenue from the sale of natural gas and liquids, a drop of 37 percent from the same period last year. With hedging, the company sold its oil and condensate for $56.99 per barrel and sold its natural gas for $2.53 per thousand cubic feet. Rex spent $26.8 million on Marcellus and Utica shale drilling. That included drilling five wells, fracking eight wells and placing four wells into production. The company has 31 Utica wells producing in Ohio, according to the state’s Department of Natural Resources.
Chesapeake is putting Ohio on hold - Chesapeake Energy Corp. has decided to cut back on its operations in Ohio until the pipeline that will deliver its Ohio natural gas to the Gulf Coast is completed. Last month, Chesapeake announced it would begin cutting back its Utica Shale gas production by 100 million cubic feet per day. According to Chesapeake executives, until November, when the Ohio Pipeline Energy Network is planned to be online, the company will up its cut backs to 275 million cubic feet per day. As reported by the Columbus Business First, the Appalachian region “is awash in natural gas because of the incredible production from the Utica and Marcellus shale plays, and that means drillers aren’t getting the prices they want when they try to sell it here. Chesapeake is choking or shutting-in wells instead of selling low.” It is no shock that Chesapeake has decided to cut back its production for now. As the company’s Executive Vice President for Exploration and Land Frank Patterson explained, the difference between this year and last year’s oil and gas production is “dramatic.” The downturn the industry has faced over the past several months is the main reasoning behind companies like Chesapeake cutting back. However, while putting a hold on much of its production, Chesapeake’s production did manage to grow 13 percent when compared to last quarter. Currently, the company has an estimated one million leased acres located in the Utica Shale formation. During 2014, Chesapeake ran eight rigs in the region and this year that number dropped to four. By the second half of this year, the company is expected to only have two rigs running.
Once Burned, Twice Shy? Utica Shale Touted to Investors As Shale Drillers Continue Posting Losses -- For the past several weeks, the drilling industry — hammered by bad financial results — has begun promoting its next big thing: the Utica shale, generating the sort of headlines you might have seen five years ago, when the shale drilling rush was gaining speed. “Utica Shale Holds 20 Times More Gas Than Previous Estimates”, read one headline. “Utica Bigger Than Marcellus”, proclaimed another. The reason for the excitement was a study, published by West Virginia University, that concluded the Utica contains more shale gas than many estimates for the Marcellus shale, a staggering 782 trillion cubic feet. “This is a landmark study that demonstrates the vast potential of the Utica as a resource to complement - and go beyond - what the Marcellus has already proven to be,” Brian Anderson, director of West Virginia University's Energy Institute, told the Associated Press. But those considering investments based on the Utica's potential may want to pause and consider the shale industry's long history of circulating impressive predictions, later quietly downgraded, while spending far more than they earn. “The industry has not been generating enough money to cover its capital spending and dividends,” Fidelity Investments energy fund manager John Dowd told Barrons. Indeed, while it is clear that the shale drilling rush has produced large amounts of oil and gas, (alongside wastewater and other environmental impacts), the financial prosperity promised by its backers has not seemed to materialize.
UTICA SHALE BULKS UP - -- Call it the Golden Triangle of natural gas. The region where southwestern Pennsylvania, southeastern Ohio and northern West Virginia mash up near the Ohio River is turning out to be the natural gas version of Fort Knox. Monster dry gas wells seem to be fulfilling the promise of geologists who claim Utica Shale production might end up being bigger than its Marcellus cousin. That’s saying something, because the Marcellus already produces more than 17 billion cubic feet per day (Bcf/d) and is the largest producing gas field in the world. As a result, traditional Appalachian pipeline flows are changing for the first time since the 1940s, with gas and NGLs now set to flow south to the Gulf Coast, east to New Jersey and Maryland LNG export points, and west via the reversed Rockies Express Pipeline to Midwest markets. Bernstein Research forecasts that by 2018, the Marcellus and Utica combined will produce 23 Bcf/d or a third of all U.S. gas production. About 3.7 Bcf/d of new and expanded pipeline capacity comes on line this year and another 6 Bcf/d comes on line in 2016. Like other shale plays, the Utica offers a basket of opportunities via its wet, dry and condensate/oil windows. It is larger than the Marcellus in areal extent throughout the Appalachian region and is a thicker reservoir, but it’s found deeper, so is more expensive to drill. Its ultra-rich gas areas boast some of the lowest breakeven prices in the U.S. Rice Energy Inc. claims its Utica dry gas breakeven price is $2.35/MMBtu; wet gas is $2.05. However, thanks to low oil prices that hurt condensate realizations, producers have been focusing on the Utica’s dry gas window, and that is turning up some huge prizes. Most of the permits to date are east of Interstate 77. “The infrastructure is partly driving that and, of course, the geology is speaking,” said Rick Simmers, chief of the Ohio Department of Natural Resources, Division of Oil & Gas. “We believe when commodity prices recover, some exploration will go west of I-77 again.”
FBI investigating possible threats against PennEast employees - The FBI is investigating letters sent to PennEast, the company proposing a controversial natural gas pipeline that would span 114 miles from Wilkes-Barre to Mercer County, N.J., for possible threats against company employees. PennEast has received plenty of “spirited” comments since entering the public comment phase of the project last October, but several letters received in April caused enough concern that the company turned them over to authorities, said PennEast spokeswoman Patricia Kornick. She declined to specify the nature of the alleged threats contained in those letters, but said the company has since hired a private security firm to provide extra protection for employees. Kornick wasn’t certain how many letters the company received, but said the FBI has been investigating since April. “There is a strong organized movement of opposition regarding natural gas, so as a precaution, many firms will hire additional security for the safety of their employees and they will also step up security when there are public meetings,” Kornick said.
Marcellus permit activity in Pennsylvania, July 27th through August 2nd - The Marcellus Shale formation in Pennsylvania saw a little bit of action over the last week, but well activity isn’t the only area of the oil and gas industry in Pa. that has seen some action. Apparently employees of one Pennsylvania pipeline company has received death threats in conjunction with a current project. Since entering the public comment phase of its proposed 114 mile natural gas pipeline last October, PennEast has received numerous vocal comments from the public regarding the pipeline. However, in April the company received several threatening comments and handed them over to authorities to investigate. Patricia Kornick, PennEast’s spokesperson, did not go in depth as to what the comments contained, but she did say PennEast has hired a private security firm to supply its employees with extra protection. The FBI took over the investigation in April, and it has not been stated how many letters it has looked into. To read The Morning Call’s entire story regarding the FBI investigating threatening comments sent to PennEast, PennEast, click here. The following information is provided by the Pennsylvania Department of Environmental Protectionand covers July 27th through August 2nd. New: 23 - Renewed: 1
The future of natural gas in America -- Natural gas, once the main part of the equation in the transition from coal to renewables, has been replaced by … nothing at all. The new climate change rule for power plants suggests instead a direct transition from coal to renewables. Now, this is not the way to make friends. Especially since the gas industry held different expectations based on last year’s proposed clean power plan. As reported by The Guardian, “Under the clean power plan as proposed by Obama in June last year, gas would have permanently overtaken coal as the largest energy source by 2020.” Enter 2015 and gas is the uncle with the noticeable toupee left out of the family photo. Obviously, the gas industry is up in arms about not having a place at the clean power table.As reported inThe Hill, Frank Macchiarola, the top lobbyist for America’s Natural Gas Alliance, said “the president presented a ‘false choice’ between natural gas and renewables… The fact is that for a diverse fuel supply, you’re going to need both out into the future. The likely scenario is that natural gas will be part of the long term picture because wind and solar are intermittent power sources.” Since power sources behave differently and our energy appetite is unlikely to decrease in the near future, it seems wise to have a wide range of energy sources.On the other side of this debate are the environmentalists, who are quite frankly thrilled with leaving gas out of the picture. According to The Hill, “We’re thrilled about any opportunity to replace coal directly with renewable energy, because the whole idea of natural gas as a bridge fuel has become debunked as we get more and more understanding of how bad natural gas is, and how ready to go renewable energy is,” said Julian Boggs, the global warming outreach director for Environment America. “Deploying as much renewable energy as possible is essential to solving global warming. Natural gas can’t solve global warming.”
Methane Leaks May Greatly Exceed Estimates, Report Says - The New York Times#: A device commonly used to measure the methane that leaks from industrial sources may greatly underestimate those emissions, said an inventor of the technology that the device relies on.The claim, published Tuesday in a peer-reviewed scientific journal, suggests that the amount of escaped methane, a potent greenhouse gas, could be far greater than accepted estimates from scientists, industry and regulators.The new paper focuses on a much-heralded report sponsored by the Environmental Defense Fund and published by University of Texas researchers in 2013; that report is part of a major effort to accurately measure the methane problem. But if the supposed flaws are borne out, the finding could also have implications for all segments of the natural gas supply chain, with ripple effects on predictions of the rate of climate change, and for efforts and policies meant to combat it. Almost all of the methane leakage calculated from the Texas research “could be affected by this measurement failure,” according to the paper; “their study appears to have systematically underestimated emissions.” The new paper describes a pattern of low measurements of leaks by the Bacharach Hi Flow Sampler, a device approved by the Environmental Protection Agency for its required monitoring of natural gas facilities and in use around the world.
13 Arrested at Crestwood Blockade While Reading Pope Francis’ Encyclical on Climate Change -- Early this morning, in a peaceful civil disobedience action against gas storage in Seneca Lake salt caverns, which took place the day after President Obama announced the Clean Power Plan to move the nation away from fossil fuels, 13 people from six New York counties were arrested while reading verses from Pope Francis’ recent encyclical letter on climate change. Just after dawn, the 13 formed a human blockade at the north and south entrances of Crestwood Midstream’s gas storage facility on Route 14, preventing all traffic from entering or leaving and began their reading. Joining the pontifical read-aloud was the Rev. John D. Elder, former pastor of the historic First Church in Oberlin, Ohio and present part-time resident of Schuyler County. Rev. Elder was not arrested.
Landowners unable to terminate aging pipeline contracts -- Sarah “Sally” Birkner stood on a hill of her property and watched as fire from a natural gas pipeline explosion 20 miles away near Cuero burned itself out. . Under her property was a 40-year-old pipeline she battled about in court for two years. She feared if the pipeline under her land became operational again, it would destroy the place she and her family have shared for more than 100 years. About half of the state’s extensive network of oil and gas pipelines were built before 1970, according to Pipeline and Hazardous Material Safety Administration data. Some, like the one under Birkner’s property, haven’t had product sent through them for years. Three feet below the earth’s surface, they’ve been out of sight and out of mind. But Texas pipeline companies said landowners aren’t in the clear. Legal experts say the companies are using the law to redefine use to hold on to the pipelines and the thin strips of land that run over them. As a result, landowners are finding themselves battling over easements that they thought was rightfully theirs. Birkner’s family and neighbors have built their homes and livelihood on top of the 30-something mile pipeline, which they believed was abandoned. The landowners say the pipeline company didn’t keep brush and trees down or maintain signage posted above the line. The company also didn’t respond to requests to build or dig over the top of the pipeline, landowners say. Yet, two years ago, landowners were told because the company kept an electrical current on the pipeline to prevent corrosion, the company’s ownership of the line and the land over it remained intact.
Two companies continue cuts in Texas energy industry Two Houston-based oilfield companies have announced more job cuts on the horizon for Texas. National Oilwell Varco and Cal Dive International will cut a combined 276 jobs this month, according to state regulators on Monday. Fuel Fix reported that Cal Dive, which filed for Chapter 11 bankruptcy protection in March, told the Texas Workforce Commission it is closing two facilities on August 31. Its Houston and Port Arthur location closings total 126 employee layoffs. Over the next few months, National Oilwell Varco will begin the closing transition of its facility in Willis, Texas, sometime Mid-August. The company has stated that it will cut 510 jobs in the process. The firm stated that it had 63,600 employees at the end of last year. In related news, Chevron pulls nearly 1,000 jobs in Houston. According to Houston-based oil industry recruiter Swift Worldwide Resources, due to the unstable and low prices of crude, 176,100 jobs have been lost worldwide. The estimate rose by 10,000 in June and another 14,500 in July. Even worse, there’s no sign whatsoever that layoffs are over for the year. The industry can only hope that the worst is over. Fuel Fix stated that Cal Dive International’s main operations involved sending manned diving vessels to offshore oil-production sites to help with maintenance and inspection. National Oilwell Varco builds blowout preventers and other equipment for the oil industry.
Oklahoma regulators impose water injection cut to stem earthquakes - – Oklahoma regulators are imposing new restrictions on energy companies injecting wastewater underground, in the latest effort to stem a sharp increase in earthquakes. The new rules, announced by the Oklahoma Corporation Commission on Monday evening, require operators in parts of two Oklahoma counties to reduce the amount of saltwater they inject underground by 38 percent from current levels in the next 60 days. The reduction will bring injected volumes to about 2.4 million barrels below those in 2012, when the most dramatic spike in the area earthquakes began. The restrictions affect 23 wells run by 12 operators. The operators are mostly small companies, but one of the wells is run by Devon Energy Corp of Oklahoma City. The state has about 3,500 saltwater disposal wells. Oklahoma and several other central U.S. states have experienced a big increase in earthquakes since 2009. Scientists attribute this to increased underground injection since then of briny wastewater, a byproduct of booming oil and gas production. Noticeable quakes, above magnitude 3.0, now strike Oklahoma at a rate of two per day or more, compared with two or so per year before 2009.After three quakes of magnitude 4.0 or higher struck the state in a single day last month, the commission required operators of more wells to prove they are not injecting water below the state’s deepest rock formation, a practice believed to be particularly dangerous. Monday’s move goes beyond past restrictions by capping the amount of water operators in certain areas can inject at any depth. Many of Oklahoma’s most active oil and gas fields have high amounts of naturally occurring water, and a reduction in the amount of water that can be injected could mean lower production of oil and gas. Kansas, which has also had a spike in quakes, undertook a similar move in March.
Oklahoma Cracks Down on Disposal Wells To Reduce Earthquakes - Oklahoma is requiring energy companies to greatly reduce the amount of wastewater they inject below ground in an earthquake-prone part of the state to determine whether this step could reduce the number of quakes that have plagued the state in the past few years. Under new rules announced the night of Aug. 3 by the Oklahoma Corporation Commission, 12 companies operating in a 40-mile tract northeast of Oklahoma City must reduce by 38 percent the amount of wastewater they inject into 23 disposal wells over the next 60 days. The commission, whose Oil and Gas Conservation Division issued the regulations, said they will cut wastewater volume by about 2.4 million barrels below their level in 2012, when a sudden increase in earthquakes began in the area. In fact, there’s been a marked increase in the number of earthquakes in Oklahoma and several other central states since 2009. Various scientific studies say they are caused by a corresponding increase in the underground disposal of salty wastewater, a byproduct of the recent boom in oil and gas drilling in the region. Producing oil and gas generates this wastewater whether it is extracted conventionally or by hydraulic fracturing, also called fracking. Scientists say this newly disposed wastewater finds its way into cracks in underground rock, loosening them until they slip under the pressure of weight of rocks above them.
Ruptured gas line causes large explosion in N Colorado - — A worker digging a trench on a northern Colorado ranch hit a high-pressure gas line, sparking an explosion that sent flames several hundred feet into the air and touched off a small grass fire. Sean Standridge, a spokesman for the Weld County Sheriff’s Office, tells The Greeley Tribune (http://goo.gl/UJiZAB ) an employee for DCP Midstream hit the 12-inch gas line at the Wells Ranch east of Lucerne on Thursday afternoon. The worker was not injured, but the trenching machine was destroyed. Fire crews recommended that residents within a 2-mile radius of the fire leave their homes. The fire is in an area with few homes. PDC Energy and DCP Midstream officials were at the scene Thursday.
Surrounded by frac mine, Blair couple put farm in conservation - The land around Mary Drangstveit’s farm is changing. Earth movers and graders have replaced farm tractors and combines. Hillside has been stripped bare, lowlands filled with yellow soil. A silica sand mine is moving in. “This was all farm fields,” she said, gesturing across the road. “It has become an unbelievable mess.” But Drangstveit, 72, is determined to make her 120-acre hobby farm and home of 42 years an oasis amid the sand piles. On Wednesday, she signed a conservation easement, ensuring the land can’t be developed. During the past decade, advances in a drilling technique known as hydraulic fracturing — or “fracking” — opened up vast stores of gas and oil in North America, spurring demand for fine-grained silica used in the process. With its ample supply of sand and access to rail lines, Trempealeau County has been at the center of a frac sand mining boom. As of 2014, there were more than two dozen proposed or operating mines. Leland Drangstveit said it was about four years ago that a neighbor drove up and told him a mine was coming and that the neighboring land would be annexed into the city. “I thought, ‘Who the hell are you?’ ” Drangstveit said. Then last fall, neighbors started selling — for big bucks. A one-acre parcel went for $300,000; one six-acre site fetched $850,000. A 70-acre farm: $3 million. All told, the Houston-based company paid out nearly $24.6 million for 1,152 acres, according to state property records — more than 4.5 times the statewide average value for farmland. Today, the Drangstveit farm is girded on three sides by mine property.
Minnesota Public Utilities Commission sets outline for Sandpiper pipeline route process - The Minnesota Public Utilities Commission on Monday released expected guidelines for the process for approving a route for Enbridge Energy’s proposed Sandpiper oil pipeline. The order will require the Minnesota Department of Commerce to study the cumulative environmental impact of locating two new pipelines in one new corridor — the Sandpiper line and the Line 3 replacement — as the company has proposed. The PUC order Monday won’t delay Enbridge’s expected schedule of having a route for the new oil line approved in 2016 and the line moving oil by 2017, said Loraline Little, Enbridge spokeswoman. “It’s restating the route process, laying it back out going forward,” she said. Opponents to the pipeline contacted Monday said they hadn’t had time to digest the PUC order. The all-new, 616-mile Sandpiper pipeline is proposed from Beaver Lodge in northwestern North Dakota’s Bakken oil field to Superior. About 300 of those miles are across northern Minnesota. The company hopes to begin work on the line in 2016 and have it moving oil by 2017 — about 375,000 barrels, or nearly 15.8 million gallons, across Minnesota each day. Opponents are concerned about any possible oil spills in the water-rich environment of northern Minnesota, noting it would cross many streams and wetlands. Enbridge company officials and other supporters said the $2.6 billion pipeline is a safer and less expensive way to move oil than by rail.
Bakken oil activity holding steady -- The Bakken’s rig count is maintaining a healthy level while overall production levels have seen a slight uptick, reports United Press International (UPI). As of Monday there were 74 active drilling rigs in North Dakota, a level relatively unchanged over the past month. According to the state’s oil and gas regulatory body the North Dakota Industrial Commission, during May, the last full month for which state data was published, production reached 1.2 million barrels per day. This level is only slightly below the record posted in December of last year. North Dakota is now the second largest oil producing state in the nation, and while the state economy is diversified, a large part is dependent on the oil and gas produced in the Bakken formation. As reported by UPI, Bentek, the forecasting branch of energy reporting agency Platts, says Bakken production for the Month of June increased by approximately 100,000 barrels per day. After oil prices dropped by in less than a year, many oil and gas companies began scrambling to find ways to reduce operating costs and annual budgets. As a result, energy companies are finding ways to do more with less, which is evident in both rig and production data. Analyst Sami Yahya told UPI, “Gains in efficiency have [entered] every facet of the drilling and production operations. Drill times have been reduced on average by three to five days in most of the major shale plays in the country.” So far this year, the low point for North Dakota production was 1.16 million barrels per day in April when the rig count tallied in at 84. Overall, the rig count is down almost 70 percent from the record high. But, due to increases in efficiency and drilling methods, NDIC Director Lynn Helms reports that the rig count is about five less than what was expected with oil prices below $65 per barrel.
Marathon Oil production increases in the Bakken - Increased production from the Bakken might be the saving grace for Marathon Oil after posting a $386 million loss for the second quarter. As reported by United Press International (UPI), the company said that for its North American operations, net production averaged 274,000 barrels of oil equivalent per day (boed). The increase is 21 percent greater for its year-to-year figures, but a 3 percent decline from the previous quarter. Marathon President and CEO Lee Tillman partly attributed the overall decline to decreased spending on exploration and production. In a statement, he said, “Capital spending in the quarter was down about 40 percent sequentially as we’ve moderated activity levels in the U.S. resource plays.” In other areas of operation, Marathon reported mixed results. In Texas’ Eagle Ford shale play, the company saw a 32 percent net production increase for the second quarter when compared to 2014, but an 8 percent decrease compared to this year’s first quarter. In its Oklahoma operations, production increased 33 percent from last year and remained mostly unchanged from this year’s first quarter. Rather than focusing on the market and fluctuating oil prices, the company focused on things within its control, such as well productivity and operational efficiencies. Tillman said, “Looking to the second half of the year, we expect to maintain production levels and achieve our year-over-year production growth of 5-7 percent for the total company and 20 percent in the U.S. resource plays.”
‘The Oil Project’ brings the Bakken boom to live theater -- To close the Plains Art Museum’s Bakken Boom! exhibit which came to Fargo earlier this year, the Museum collaborated with local acting troupe Theatre B to produce ‘The Oil Project.’ The 45-minute live production will chronicle the people and the pumpjacks of the Bakken oil fields. The production was conceived by Theater B ensemble members and guest artists who spent the past summer researching, generating, and developing the performance. ‘The Oil Project’ follows several characters through the beginning years of the boom and the transformations of the once sleepy rural communities to the present day, where the prospect of a bust pervades through the area’s consciousness. The production is part character exploration, part art installation, and incorporates the sights and sounds recounting Western North Dakota’s modern day gold rush.“It’s an incredible rush to create a piece of theatre from scratch,” said Theatre B Program Coordinator Brad Delzer in a statement. “Devising a play is a new experience for us. It’s a daunting idea, to expect a performance to be created from a company working and creating for several months. The artists have spent countless hours exploring what the boom means to those who live and work there through research, movement, music, and relationships.”
Sewage flow becomes Williston's oil bust indicator - The population of a U.S. oil boomtown that became a symbol of the fracking revolution is dropping fast because of the collapse in crude oil prices , according to an unusual metric: the amount of sewage produced. Williston, North Dakota, has seen its population drop about 6 percent since last summer, according to wastewater data relied upon heavily by city planning officials. They turned to measuring effluent because it was a much faster and more accurate way to track population than alternatives such as construction permits, school enrollment, tax receipts or airport boardings. U.S. Census Bureau figures are usually too old as a full-fledged population count only happens once a decade, with sporadic updates in between. That’s not going to catch any swift changes in the population of cities like Williston. “Here in Williston, the growth rate is not predictable,” said David Tuan, director of the city’s public works department. “Measuring wastewater flow tends to be the most-efficient way to track population.” The recent high-water mark for Williston’s population was 33,866 in August of last year, just before the oil price collapse. Crude oil has fallen more than 50 percent in the past year and hurt many companies’ finances, leading to massive cost cutting, including the cancellation of projects and lay offs. By June of this year, the town had shrunk to 31,800 people, according to the sewage data.
US Shale: How Smoke And Mirrors Could Cost Investors Millions - In this post I present what I found from applying R/P (Reserves divided by [annual] Production) ratios for Light Tight Oil (LTO) for 3 big companies in Bakken/Three Forks/Sanish. The companies are; Continental Resources, Oasis Petroleum and Whiting Petroleum, which operated 28% of total LTO extraction in the Bakken (ND) in December 2014. Undertaking oil and gas reserves assessments are just as much an art as a science. From previous work with LTO from Bakken I kept track of the R/P ratio for wells/portfolios and generally found it was in the range of 3 – 4 after their first year of flow. This suggested that 25 – 35% of the wells’ Estimated Ultimate Recovery (EUR) was extracted in their first year of flow. Examining some big Bakken companies SEC 10-K (SEC; Securities and Exchange Commission) filings for 2014 I noticed that these had R/P ratios for Proven Developed Reserves (PDP) that ranged from 7 – 9. That did not make sense and R/P ratios give away powerful and very valuable information about likely future extraction trajectories. About 50% of the companies’ total LTO extraction (flow) in Dec 2014 in Bakken (ND) were from wells started in 2014. In other words, the flow was dominated by “young” wells which decline rapidly. Therefore, whatever flow data (monthly, quarterly) that was annualized it should be expected a R/P ratio for total extraction around 4 for 2014. What I present is how PDP, extraction data and R/P data derived from the 3 companies SEC 10-K statements compares to what was derived from actual data. Further, what actual data now is projecting for EUR for the average well for these companies. For 2015 the chart is based on: WTI at $60/b and a type well at $8M was found to have a 0% return with a total first year LTO flow at about 90 kb. LTO in Bakken will now generally work profitably with an oil price (WTI) above $80/b.
FracTracker Alliance has data on 1.7 million wells in US - FracTracker Alliance has updated its national oil and gas wells count to 1.7 million - data now available for download and on a dynamic map. This new research digs deeper into the data to provide people with more accurate well counts and locations, and highlights the poor state of national oil and gas data. Learn more: http://www.fractracker.org/2015/08/1-7-million-wells/ For more information, please visit www.fractracker.org.
The Art of Deconstructing Rig Counts -- The major player in rig counting is the oil services company, Baker Hughes, which has been tallying rigs since 1944 and counting. The rig count as reported by Baker Hughes is “a weekly census of the number of drilling rigs actively exploring or developing oil or natural gas in the United States and Canada.” Just because a rig is included in the count, though, does not mean it is producing oil or gas. In fact, it might even end up with the status of a “dry hole,” meaning no production will take place at the well. Let’s start with what rig counts don’t tell us. Melissa Breener writes in the Louisiana DNR Rig Count that counts are unable to reveal production, drilling success rate and depth, cost, geology, location and economic potential. “Rig count can tell us that wells are being drilled, but not how many will actually produce once drilling is complete.” In fact, as Breener states, “The deeper a rig has to drill, the longer it will be on location and active.” Drilling cost is as important as it is complex. Breener points out that “Average costs are generally measured in cost per foot and vary by region and depth. The cost of drilling escalates with depth, both the average cost per foot to a total depth, and the incremental cost per incremental foot drilled. Also, with depth comes higher subsurface temperatures and pressures which can create the need for more costly safety measures and equipment.” Drilling deeper requires rigs with deep drilling capacity that are in limited supply. This leads to additional costs, as does the hardness of the rock being drilled and local flora and fauna in need of extra care and attention. Then of course, there is the information that rig counts do provide. Breener reports that “rig count succeeds in communicating drilling activity, modeling the petroleum job market, and predicting the demand for oilfield service.”
Refugio oil spill may have been costlier, bigger than projected - A Plains All American Pipeline oil spill off the Santa Barbara County coast this year may have been bigger and costlier than originally expected, the company said in its quarterly earnings update Wednesday. The May 19 spill could cost the Texas company as much as $257 million in response and cleanup costs, assessments and fines, and legal settlements, the company stated. Also, as many as 143,000 gallons of crude may have been spilled when the line ruptured, not 101,000 gallons, as Plains originally estimated. The company did not provide a new estimate on how much of that oil ended up in the Pacific; the original estimate was 21,000 gallons. The spill occurred when a corroded section of a 10.6-mile pipeline that runs parallel to U.S. 101 ruptured, sending crude flowing down a culvert to the ocean. Oil heavily coated a stretch of the Gaviota coast and forced the closure of Refugio and El Capitan state beaches. El Capitan reopened in June. Small tar balls from the spill made their way as far south as Redondo Beach in Los Angeles County. Hundreds of sea birds and mammals, many coated in crude, washed up in the spill area in the weeks following the spill. The company refined its estimate after flushing 26,500 barrels of oil (or 1.1 million gallons) from the pipeline and realized its initial calculation may have been too low. Plains has tapped an outside party to analyze the company’s data to get a more precise estimate of the spill’s total, according to Tuesday’s update.
Alberta Earthquakes Tied to Fracking, Not Just Wastewater Injection - Fox Creek, an oil town of nearly 3,000 residents in western Alberta, recently experienced its third earthquake of at least magnitude 4.0 this year. The difference between this one and many of the quakes felt in fracking country in the U.S., however, is that Canadian researchers are attributing the cause to fracking itself, not just the wastewater disposal process. The reported 4.4-magnitude event that jolted the region in mid-June was the latest in a surge of seismic events that ramped up in December 2013, around the time fracking increased in this part of Alberta. There was no reported damage, but Chevron Corp. temporarily shut down its drilling operations nearby. In western Canada, similar to parts of the central United States, one of the emerging side effects of the fracking boom is what scientists call "induced seismicity" — the proliferation of suspected man-made earthquakes. In Canada, though, scientists and regulators now believe the dominant trigger of induced earthquakes affecting western Alberta, including Fox Creek, and parts of British Columbia, is the fracking itself—the pumping of huge amounts of chemicals, water and sand down a well to crack open bedrock to release oil and gas. "Even a year ago, there was a fairly widely held view that almost all of the induced earthquakes [across North America] were coming from wastewater disposal and that hydraulic fracturing has very limited potential to induce earthquake," Despite the growing awareness about fracking-caused quakes in Canada, "what's less clear is how much of the seismicity in the U.S. might be tied to hydraulic fracturing," said Atkinson. "I think there's so much of it from wastewater disposal, it may be masking an underlying signal from hydraulic fracturing."
LNG Exports DOA ? - A little background: a good petroleum reserve engineer – who estimate how much oil or gas is in the ground – is essential to a profitable oil or gas venture. Art Berman is a good one, maybe a great one given his iconoclastic stance on shale plays. Here’s his latest: No Joy in Mudville*: Shale Gas Stalls, LNG Export Dead On Arrival Something unusual happened while we were focused on the global oil-price collapse–the increase in U.S. shale gas production stalled (Figure 1). Marcellus and Utica production increased very slightly over May, 1.1 and 1.5 mmcf/d, respectively. The Woodford was up 400 mcf/d and “other” shale increased 300 mcf/d. Production in the few plays that increased totaled 3.3 mmcf/d or one fair gas well’s daily production. The rest of the shale gas plays declined. The earliest big shale gas plays–the Barnett, Fayetteville and Haynesville–were down 25%, 14% and 48% from their respective peak production levels for a total decline of -4.8 bcf/d since January 2012. The fact that Eagle Ford and Bakken gas production declined suggests tight oil production may finally be declining as well. To make matters worse, total U.S. dry natural gas production declined -144 mmcf/d in June compared to May, and -1.2 bcf/d compared to April (Figure 2). Marketed gas declined -117 mmcf/d compared to May and -1 bcf/d compared to April. Although year-over-year gas production has increased, the rate of growth has decreased systematically from 13% in December 2014 to 5% in June 2015 (Figure 3). This all comes at a time when the U.S. is using more natural gas for electric power generation. In April 2015, natural gas used to produce electricity (32% of total) exceeded coal (30% of total) for the first time (Figure 4). For now at least, the U.S. is producing less natural gas because shale gas is stalled and conventional gas production is in terminal decline at 10% per year. The country is consuming more gas for electric power generation thanks to government regulations, and we are poised to export more gas outside the country both as LNG and as pipeline gas to Mexico.
LNG and Site C aligned for perfect storm – This province is being ravaged by forest fires this summer, but there’s a good chance an entirely different kind of firestorm will be confronting B.C. by the time next summer comes along. Brace yourselves for a series of political protests that will undoubtedly include a massive amount of civil disobedience, but which may also in some cases drift to the extremes of sabotage and violence. Story continues below A number of major resource projects are getting closer to becoming actual work sites instead of conceptual ideas. And when that work begins, expect the protests to start in earnest. One of the major protest locations will undoubtedly be at the Site C dam construction sites in the Peace River Valley. There is widespread opposition to the project (although there is also strong support for it) and various opponents have vowed to do whatever it takes to stop construction from actually occurring. Some are calling for a moratorium on construction until various lawsuits against the project wind their way through the legal system. But there is a zero chance of that happening, and in fact work has already begun as a number of contracts have been awarded to contractors. There may be some protests this summer or fall, but it’s likely a more organized campaign begins next spring and summer. Don’t be surprised to see human blockades attempt to shut down any work being done, with the result being mass arrests. The rhetoric flowing from various Site C dam opponents suggests this is not going to be a case of a bunch of people waving placards and booing construction workers. No, something more serious is likely to occur. We’ve already seen the disquieting development of “Anonymous” (the shadowy group of computer hackers) vowing revenge over the fatal police shooting in Dawson Creek of someone who may or may not have been connected with a Site C protest group. But the Site C dam is not alone in attracting opponents determined to shut something down. Add the Kinder Morgan pipeline to that list, as well as any LNG facility or pipeline, open pit mine, or expanded port facilities.
Hamm is certain the export ban will be lifted by October just as OPEC reduces output - The global oil market is in for some big changes this fall if oil tycoon Harold Hamm’s crystal ball proves accurate. During a quarterly update conference call on Aug. 6, the Continental Resources Chairman and Chief Executive Officer predicted an “energy paradigm shift will have profound long-term consequences worldwide starting with the U.S. crude export ban being lifted so America can finally compete freely in world energy markets.” He foresees the world demand growth and low oil prices rebalancing eventually; meanwhile, recent world events like the Iranian nuclear agreement and the Organization of Petroleum Exporting Countries (OPEC) actions have shifted momentum to an all-time high. “OPEC has announced plans to reduce production beginning in September and we think that may be the first of many,” Hamm said. OPEC output dropped in July by 362,000 barrels according to a Bloomberg survey, but it still continues to produce two million barrels per day above its quota, analysts say. U.S. oil production is also dipping. On Aug. 5, the Energy Information Administration showed that U.S. crude inventory fell 4.41 million barrels which is three times more than expected. Hamm said oil exports “make too much sense economically, especially as this administration moves to lift restrictions on Iranian oil exports.” He added that lifting the ban has bipartisan support in by both the House and Senate. Hamm was confident in his forward-looking statements, but he exhibited the same certainty in November when Continental chose to monetize nearly all of its oil contracts through 2016. Back then, Hamm said he felt oil prices were at “the bottom rung … and we’ll see them recover pretty drastically, pretty quick” only to watch prices fall even further over the past eight months.
‘Frack now, pay later,’ top services companies say amid oil crash – Business is so tough for oilfield giants Schlumberger and Halliburton that they have come up with a new sales pitch for crude producers halting work in the worst downturn in years. It amounts to this: “frack now and pay later.” The moves by the world’s No. 1 and No. 2 oil services companies show how they are scrambling to book sales of new technologies to customers short of cash after a 60 percent slide in crude to $45 (29 pounds) a barrel. In some cases, they are willing to take on the role of traditional lenders, like banks, which have grown reluctant to lend since the price drop that began last summer, or act like producers by taking what are essentially stakes in wells. At Halliburton, some of the capital to finance the sales will come from $500 million in backing from asset manager BlackRock, part of a wave of alternative finance pouring into the energy industry that one Houston lawyer said on Thursday allows companies to “keep the engine running.” When its second-quarter net profit tumbled by more than half a billion dollars to just $54 million, Halliburton’s Chief Executive Dave Lesar told analysts the company needed to find new revenue. The BlackRock money, he said, would allow Halliburton to “look at additional ways of doing business with our customers, different business models, push beyond where we have been today.” Halliburton declined to provide additional details, including how many customers it has for its financing programme, citing confidential dealings with clients. Schlumberger has said it has eight onshore refracking clients in North America. Another variant, which Halliburton has considered and Schlumberger has pushed, is one in which the companies cover up-front costs for a producer and then get a piece of a well’s performance.
Pumping on a prayer - We were hoping that as we turned the corner to August we would have at least seen something better, but so far nothing. We're all still riding on the back of the China woes and the high supply of oil production. That brings up an interesting point—why is it we’re so concerned about OPEC and their production, and we’re still not willing to cut back here? There’s been no talk about increasing costs at Cushing because we’re not getting it out of that storage area fast enough. We haven’t talked about why there’s still plenty of small to mid-cap producers pumping out oil on hope, a prayer and a deteriorating credit line. It’s because at the end of the day America still needs oil. If there’s one thing that we are consistent on in the United States it’s this “never enough” attitude. We’ve increased our domestic production in the United States from 5MM b/d to 9.6MM at its peak a few weeks back. That’s nearly a 100% increase. We managed to get to that number while oil prices had dropped from $90 to $45. Think about that, we doubled our domestic production and cut the price (and margins) in half. Oh, we were making changes everywhere. We cut OPEC oil practically out of the picture too since we hit the fracking boom. We increased oil from Canada from 1MM b/d to triple that to 3MM b/d. We were bringing in about 1.5MM b/d of oil from Nigeria and that’s been cut down to zero until recently. That’s now barely covering a few hundred thousand a day and I would imagine we’re getting it dirt cheap too. But as you’ll notice, it’s just not enough. This isn’t the “we can do better attitude," it’s the doomed, “I think we need a bigger boat” syndrome. From the top down it’s spreading. Yesterday President O and the EPA came down on coal and even nat gas to tighten the reins. We’re seeing stricter emission regulations for power plants and it’s not outside the realm of possibility that we see something like this for the oil industry soon too.
Oil industry frets about another lost decade: - Oil is an inherently cyclical business. The point is remarkably simple but it is amazing how often it gets forgotten by forecasters and investors. In the century and a half since the modern oil industry was founded with the drilling of Edwin Drake’s well in 1859, real prices have doubled in the space of three years on no fewer than six separate occasions, and halved on four.If prices remain around $50 for the rest of the year, 2015 will be the fifth time real prices have fallen more than 50 percent in the space of less than three years. Sharp price changes over short periods have therefore been the norm and the long period of relative stability between 1931 and 1969 was the exception. It follows that any attempt to predict where prices will go in the medium term (two to five years) or long term (beyond five years) based on current prices or recent changes is bound to fail. The cyclical, unpredictable nature of prices has not stopped an army of prognosticators from trying to guess where they will go, but most forecasts have an endearing backward-looking quality. When prices are high and have been rising, most forecasts predict they will rise even further on increasing scarcity. When they are low and have been falling, most forecasts predict a further slide on continued oversupply. In 2008, and again in 2011/12, as prices were peaking at more than $140 and $120 per barrel respectively, most forecasters were predicting prices would remain high more or less forever. Not one major forecaster saw prices sinking back to less than $60 per barrel but on both occasions it happened in less than three years. Now prices have fallen, it seems no major forecaster is predicting they will rise sharply again within the foreseeable future.
With crude at $50, oil firms fear deeper crisis than in 1980s – After slashing spending by $180 billion to deal with one of the worst industry downturns in decades, oil companies are still bleeding cash and slipping further into debt to maintain dividends to shareholders. Depressed crude prices – at below $50 a barrel Brent crude is half what it was a year ago – mean even more cuts are needed at new projects and existing operations. Companies trying to dispose of oilfields to raise cash could be forced to sell quickly and for less than they hoped. There is little sign that the oil price will come to the rescue as the Organization of the Petroleum Exporting Countries (OPEC) continues to pump hard into an oversupplied crude market in response to explosive growth in U.S. shale oil. Brent is expected to average $60.60 in 2015 and $69 in 2017, according to a Reuters poll of analysts. The International Energy Agency said in February it saw it recovering to $73 in 2020 as the supply glut slowly eases. Analysts at investment bank Jefferies say international oil companies lowered their break-even points by $10 a barrel after the latest round of spending cuts, but will still need a price of $82 a barrel in 2016 to cover spending and dividends, which have been the main investment attraction for the sector for decades. “In order to cover the shortfall, the sector will increase its borrowing. While leverage remains manageable within the sector, this is not a practice that can continue in perpetuity,” Jefferies
Continental Resources profit drops 99 percent on cheap oil - Continental Resources Inc, the second-largest oil producer in North Dakota's Bakken shale formation, said on Wednesday its quarterly profit fell 99 percent as crude prices plunged. The company posted net income of $403,000, or break-even on a per-share basis, for the second quarter, compared with $103.5 million, or 28 cents per share, in the year-before period. Average daily production increased 35 percent to 226,547 barrels of oil equivalent per day.
Rice Energy widens loss - Rice Energy Inc. recorded a loss of $69.7 million, or 51 cents per share, for the second quarter. During the same time last year, the Canonsburg-based oil and gas company posted a loss of $7.9 million, or 6 cents per share. Rice drills for oil and gas in the Marcellus Shale in southwestern Pennsylvania and in the Utica Shale in Ohio. It also owns infrastructure that gathers the gas it and other operators produce and pipelines that carry fresh water from the Mon River and other sources to well sites. Low natural gas prices have hammered all exploration and production companies operating in the area. Rice’s average realized natural gas price for the quarter was $2.98, after hedging. Its production division recorded an operating loss of $60 million for the quarter, while its midstream branch had income of $20.7 million. The company said it will continue to increase oil and gas production, placing an emphasis on selling it outside of Appalachia, where gas trades at a discount to the average national price. It also announced that it has drilled its first Utica well in Greene County, following similar announcements from EQT Corp. and Consol Energy Inc. Production from the well is planned for later this year.
Gulfport Energy reports 2Q record production, financial loss -- Gulfport Energy Corporation today reported financial and operational results for the quarter ended June 30, 2015 and provided an update on its 2015 activities. Key information for the second quarter includes the following: Net production averaged 473.9 MMcfe per day, an increase of 196% compared to the second quarter of 2014 and an increase of 12% as compared to the first quarter of 2015. Estimated July 2015 net production averaged 574 MMcfe per day, a 21% increase over the second quarter of 2015. Realized natural gas price before the impact of derivatives and including transportation costs averaged $2.23 per Mcf, a $0.41 per Mcf differential to NYMEX during the quarter. Net loss of $31.3 million, or $0.32 per diluted share. Adjusted net income (as defined below) of $250,000, or $0.00 per diluted share. Adjusted EBITDA (as defined below) of $84.6 million.
Rex Energy takes on the never ending industry downslide - Rex Energy has a few ways it hopes will help the deal with the ongoing downturn in the oil and gas industry. The company plans on selling some of its assets and teaming up with other companies to develop the remaining acreage it has in the Appalachian region. To help battle the downturn, Rex Energy is also planning to continue drilling operations through 2016 with only one rig. This is a plan the company put in place at the beginning of the second quarter. By using the one rig program, the company plans on drilling an estimated 25 to 30 wells. This will allow the company to “hold by production” so its leases do not expire. As reported by the Pittsburg Post-Gazette, “Analysts at Moody’s Investor Services said it’s good that Rex is following through with its plans laid out earlier this year.” The firm gave Rex Energy a B3 negative rating and continues to maintain that rating. Vice President and Senior Analyst for Moody’s Sreedhar Kona made the following comment regarding Rex Energy’s plan: That shows us, at least from us on the credit analyst side, that they’re doing what they can do to protect their creditors. However, while continuing to scale back, Rex Energy’s CEO Tom Stabley expresses that he believes natural gas production will increase 10 percent to 15 percent by the end of this year, year-over-year. Rex Energy has no plans to alter its operating budget, which currently sits at $135 million to $145 million.
Chesapeake Energy has quarterly loss, shares tumble (Reuters) - Chesapeake Energy Corp swung to a quarterly loss on Wednesday from a year ago and shares fell as much as 10 percent as worries about hefty debt and spending at the No. 2 U.S. natural gas producer linger amid low prices. The Oklahoma City, Oklahoma company's shares have been hammered in recent months as the more than 50 percent drop in crude oil and low natural gas prices sap cash flows. To narrow the gap, Chesapeake said on Wednesday it will sell assets or pursue partners to help shoulder drilling costs. But that wasn't enough to soothe investors, who sent the stock to its lowest level since April 2003. It was down 8 percent at $7.32 in midday New York Stock Exchange Trading. "While Chesapeake continues to pursue asset monetizations, until additional guidance or execution is consummated on this front, we suspect investor focus will remain on increasing leverage versus improving underlying operations," analysts at Houston based investment bank Simmons & Co said in a note to clients. Chesapeake's capital expenditures of $960 million in the second quarter exceeded some expectations and long-term debt was $10.66 billion, up slightly from the 2015 first quarter. The company, however, raised its oil and gas production forecast for 2015 to 667,000-677,000 barrels of oil equivalent per day (boepd) from 640,000-650,000 boepd.
Chesapeake Energy Takes $4 Billion Write-Down Amid Weak Oil Prices - WSJ: Chesapeake Energy Corp. CHK 1.59 % posted a deep loss in the second quarter as the U.S. shale driller took a $4.02 billion write-down on some properties following tumbling energy prices. “While we strive to remain flexible in the face of lower commodity prices, we continue to focus on driving our costs lower,” said Doug Lawler, Chesapeake’s chief executive. Earlier this week, the world’s benchmark oil price fell to less than $50 a barrel for the first time in six months signaling a renewed slide of crude markets brought on as record U.S. production has touched off an international price war. Amid the swoon in oil prices, Chesapeake has reduced rig operations and cut capital expenditures after failing to offset the plunge with higher production. Average operated rig count during the latest quarter fell 50% from the previous quarter to 26, a far cry from the 65 rigs in operation during the same three-month period in 2014. Drilling and completion costs were slashed 40% from both the previous quarter and the same quarter in 2014 to $787 million. Chesapeake’s daily production averaged around 703,000 barrels of oil equivalent, an increase of 13% over the same period in 2014. The company also reported its average realized oil price for the quarter was down to $67.91 from $85.23 in 2014. Overall, for the quarter ended in June, Chesapeake reported losses of $4.15 billion, or $6.27 a share, compared with a prior-year profit of $145 million or 22 cents a share. Excluding certain items, Chesapeake posted a per-share loss of 11 cents, down from earnings of 36 cents a share a year earlier.
SALE: Chesapeake assets will be on the market - While holding the number one spot in Ohio’s shale oil and gas drilling, Chesapeake Energy Corp. has decided it is going to sell off some of its assets. Chesapeake’s plan is to sell its assets to help battle the never ending low commodity prices. The company has yet to announce the exact locations of which assets it will be placing on the market, but it isn’t unknown that most of them are in Ohio. Chesapeake’s Chief Executive Doug Lawler explained how there are endless options of assets the company could possibly sell: At this point in time, we have not provided which exact assets … I will tell you we are working multiple options across the portfolio. We don’t see any one solution necessarily. We see several that are possible for us.Currently, Chesapeake’s portfolio is mainly located in eastern Ohio. The company has an estimated 1 million acres under lease in the state alone, which has the potential to be the home of thousands of wells. However, the company has shrunk to only two rigs operating in Ohio, which leaves the option of thousands of wells extremely far out of arms reach. As reported by the Columbus Business First, “Much of that Chesapeake’s acreage appears to be in valuable parts of the Utica shale play. The company alleges its former founder and CEO Aubrey McClendon took its research data on Ohio acreage when he formed his new company, which McClendon denies.”
U.S. shale drillers struggle amid slumping prices – North America’s shale drillers are struggling with the renewed slump in oil prices, despite cutting costs, boosting output, and in some cases employing hedging to improve realized prices. Stock prices for most of the main shale drillers have fallen faster than the price of U.S. light crude since the middle of April. Spot WTI has fallen 20 percent since mid-April but the share price of Pioneer Natural Resources has dropped 30 percent and Continental Resources is down almost 40 percent over the same period. Both companies increased production during the second quarter. Pioneer produced 197,000 barrels of oil equivalent per day (boepd) in April-June, up from 194,000 in January-March, while Continental reported output of 227,000 boepd, up from 207,000. Pioneer’s production is mostly from the Permian Basin and Eagle Ford in Texas, while Continental’s operations focus on North Dakota’s Bakken and Oklahoma. Both companies reported that drilling and completion costs had fallen by 20-25 percent compared with the end of 2014, they told analysts during conference calls held in the first week of August to discuss their earnings. Both companies are drilling wells faster than ever before, in the best case in just 13 days, which means they can squeeze out extra efficiencies by drilling the same number of wells with fewer rigs, or more wells with the same number of rigs. Both are speeding up drilling time and boosting output per well by focusing on the most prolific shale layers in the most productive areas. Both expect to grow their production this year compared with 2014, by 10 percent in Pioneer’s case and 19-23 percent for Continental. Yet neither company made money in the second quarter. Continental’s net income was basically zero while Pioneer posted a net loss of $218 million.
Oil Prices: Shale Producers Face Reality - Not long ago the oil industry looked like it had dodged a bullet. After the worst bust in a generation cut crude prices from $100 a barrel last summer to $43 in March, the oil market rallied. By June, prices were up 40 percent, passing $60 for the first time since December. Oil companies that had cut costs began planning to deploy more rigs and drill more wells. “We didn’t think we’d be quite this good,” Stephen Chazen, chief executive officer of Occidental Petroleum, told analysts in May. The runup was short-lived. Fears over weak demand from China, along with rising production in the U.S., Saudi Arabia, and Iraq pushed prices back below $50. In July, even as the summer driving season boosted U.S. gasoline demand close to record highs, oil posted its biggest monthly drop since October 2008. “The much feared double-dip is here,” . The largest oil companies are reporting their worst results in years. ExxonMobil’s second-quarter net income fell 52 percent; Chevron’s fell 90 percent. ConocoPhillips lost $180 million. Billions of dollars in capital spending have been cut, and more layoffs are likely. Part of the problem facing the majors is that they’re producing in some of the most expensive places on earth: deep water and the Arctic. With their healthy cash reserves the majors can hold out for higher prices, even if they’re years away. The same can’t be said for many of the smaller companies drilling in the U.S. shale patch. Shale producers had bought themselves time by cutting costs, locking in higher prices with oil derivatives, and raising billions from big banks and investors. Many cut drilling costs by as much as 30 percent, fired thousands of workers, and renegotiated contracts with oilfield service companies. “That postponed the day of reckoning,”
The Impending Oil Reserve Write-Down: Each year in their annual reports, companies report on their future cash flows, net of costs, based on their proved reserves. This is referred to as the Standardized Measure (SM), which must be calculated according to specific guidelines set by the U.S. Securities and Exchange Commission (SEC). The SM is the present value of the future cash flows from proved oil, natural gas liquids (NGLs), and natural gas reserves, minus development costs, income taxes and existing exploration costs, discounted by 10%. All oil and gas firms that trade on a U.S. exchange must provide the Standardized Measure in their filings with the SEC. This is an important metric for valuing oil and gas companies. In theory, a company should be worth at least its SM. So if a company is trading at less than the value of its SM-in other words, if its enterprise value to SM ratio is less than 1-the company is in theory trading at less than its worth. It is important to understand that the SM is based on year-end proved reserves. So let's review the difference between a proved reserve and a resource. An oil resource describes the total amount of oil in place, most of which typically can't be technically or economically recovered. The portion of the resource that is technically AND economically recoverable at prevailing prices is the proved reserve. Because of the requirement that the oil be economically recoverable, proved reserves are a function of commodity prices and available technology. Oil and gas resources that became proved reserves as prices rose will no longer be considered as such should lower prices make them uneconomic to produce.
Oil trader Hall's fund down $500 mln after July market rout -- Renowned oil trader Andy Hall suffered his second-biggest monthly loss ever in July in a “brutal month” that left his hedge fund about $500 million poorer, telling investors he failed to anticipate a sudden market shift that roiled crude. Hall’s Astenbeck Capital Management in Southport, Connecticut, was the latest commodity fund to be hit by plummeting crude oil prices, following two funds closing last week. Astenbeck posted a 17 percent loss for last month and a 15 percent decline on the year after the July selloff triggered by record pumping of oil by Middle East producers, higher U.S. crude stockpiles and China’s stock market collapse. Oil prices are currently around $40 a barrel, down from about $100 a year ago. In July alone, U.S. crude fell 21 percent, its most since the 2008 financial crisis, while Brent , the global benchmark, dropped 18 percent. “Last month was brutal for most commodities and anyone investing in them,” Hall said in a letter sent to investors and seen by Reuters on Thursday.
A True Jobs Massacre Spreads in US Oil & Gas - It’s been tough for US oil companies. And even tougher for their investors. The hero du jour is Marathon Oil. Wednesday afterhours it reported an eye-popping 48% plunge in revenues in the second quarter and a net loss of $386 million. To stem the bleeding, it slashed capital expenditures by 40% from the prior quarter. “Importantly,” as it said in the press release, it was able to reduce production costs in North America by over 30% per barrel of oil equivalent from a year ago. And it cut is general and administrative costs by more than 20%. The key to survival in this environment of plunging revenues is conserving cash and slashing expenses, including “workforce reductions,” as the company calls them. And something else…. Marathon proudly said that its global production from continuing operations (excluding Libya) rose 6% from a year ago, with its US production soaring “nearly 30%.” And it’s not backing down either: Total company production would increase 5-7% year-over-year, with a 20% jump in production in the US. Thus it joined the cacophonous chorus of oil and gas companies that have been bragging about production increases despite the oil glut, despite the oil price plunge, despite the mayhem in the oil markets, just when investors are desperately waiting for the ever elusive production cuts.
OilPrice Intelligence Report: Depressed Oil Market Still Sees Production Gains: Second quarter earnings have largely reflected the depressed market conditions, with revenues down by significant margins across the board. From the oil majors on down to the small drillers, the second quarter of 2015 was a disappointing one. At the same time, oil drillers are still managing to post production gains, surprising energy analysts that have been predicting declines up until now. Part of the reason is the fact that projects have been in the pipeline for quite a while, coming to fruition only recently. That adds more capacity to company portfolios. Still, oil companies are finding more and more ways to squeeze out efficiencies, such as drilling more wells per rig. Anadarko Petroleum, Devon Energy, and Whiting Petroleum all reported impressive production figures, as drilling efficiencies allowed them to actually boost production, even in a depressed marketplace. Devon Energy reported that it succeeded in increasing production by 30 percent in the second quarter compared to the same quarter in 2014. Even more boldly, Pioneer Natural Resources, on the back of its 10 percent gain in production in the second quarter, said that it is planning on adding two rigs per month between now and the end of 2015. The Permian Basin in West Texas remains one of the few bright spots compared to other shale basins in North America. Drilling there is still profitable, with low costs and existing infrastructure. A series of pipelines have come online in West Texas over the past year, eliminating the discount that Permian oil traded at compared to the WTI benchmark. Wall Street Journal notes that RSP Permian, a Permian driller, successfully sold new equity, a sign that investors are still keen on drillers in the basin. RSP sought to raise funds to complete acquisitions and the company raised $157.5 million by selling new stock this week.
U.S. refiners find the oil market's sweet spot - (Reuters) – Low crude prices and strong demand for gasoline are creating near-perfect conditions for oil refineries across the United States, especially those geared towards maximizing gasoline production. Valero, the country’s largest independent refiner, made a gross margin of more than $13 on every barrel of oil processed in the second quarter, and a net margin of almost $8.50, both the highest since 2007. Little wonder then that Valero’s share price has climbed to the highest level since December 2007. The enormous profitability of turning crude into gasoline has incentivized refiners to run flat out since the start of the year. The volume of crude processed by U.S. refineries last week hit a record 17.1 million barrels per day (bpd), 680,000 bpd above the prior-year level and almost 1.5 million bpd above the 10-year seasonal average. But strong consumption has absorbed all the extra gasoline production, and motor fuel stockpiles remain moderately tight. Gasoline consumption has averaged more than 9.5 million bpd over the last four weeks, according to the U.S. Energy Information Administration, which is almost half a million barrels above the 2014 level. Stocks are just 217 million barrels, less than 3 million barrels, or 1.3 percent, above last year’s level. But if stocks are adjusted for the higher rate of consumption in 2015, they stand below both the prior-year level and 10-year average. Gasoline stocks are currently equivalent to just 22.7 days worth of consumption, the lowest seasonal level since 2008. Low stocks explain why the gross margin for turning crude into gasoline remains at 50 cents per gallon or more, some of the fattest margins in the last decade.
EIA Capitulates Under Cover Of Darkness - Many investors know that when a company wants to mitigate media coverage of bad news, they typically release data on a Friday after the close. Well last Friday, that is exactly what the EIA did, admitting the very thing I and Cornerstone Analytics have been arguing all year: EIA was and still is overstating U.S. production. The amount that they admitted to so far, as of Friday afternoon, was 254,000 barrels per day (b/d) or 1,778,000 barrels per week, 7,112,000 per month or 14,224,000 for June and July alone. This is the most incredible cover up I have ever witnessed in my decade-long investment career and I have not seen one major media outlet even mention it so far. Instead China demand & Iran output are front and center as per prior posts in an attempt to divert attention (I call it moving the goal posts) away from the fact that both U.S. production and inventories were about to fall. The chart below speaks for itself on what is occurring: To be clear, the EIA, on a weekly basis, uses a proprietary model to estimate U.S. oil production and then on a monthly basis uses actual data to revise those figures. Thus, what we were witnessing from Texas RRC data and Bakken output appears to be spot on in estimating that actual production was well below EIA estimates. As a result, the EIA made the correct choice to revise their figures. As time passes, I suspect both June and July will be revised even lower, rendering the analysis of a 14 million barrel overstatement for June and July too conservative.
WTI is retesting $45 -- Izabella Kaminska -- And we’re probably going lower due to a glut of Saudi and Middle Eastern crude entering the market. Here’s the latest from JBC Energy: Total OPEC crude production remained at elevated levels in July as Middle Eastern heavyweights such as Saudi Arabia and Iraq continue to pump near record levels. According to our SuDeP assessment, July production stayed largely on par with our revised June figures at 31.4 million b/d. That is about 1.1 million b/d more than in the same month last year, with Saudi Arabia and Iraq contributing the most to y-o-y growth (see chart). Also worth putting into the mix are reports (from fringe media) of Opec nations shorting the oil market directly, with the Kuwait Investment Authority and Saudi Arabia’s SWF SAMA cited specifically. What to make of this? Well, first, it’s not unheard of for these institutions to short. It’s also necessary to differentiate from outright shorting and curve plays, which exploit spread differentials. Going short the paper market for a producer can simply mean hedging, a.k.a selling oil forward because you can get a better price for selling tomorrow’s oil than today’s. Selling forward AND selling physical? Well, that arguably puts a producer entity in a coordinated strategic assault position. Why? Because it naturally suppresses the contango which would otherwise emerge on the back of mass oil dumping in the spot market. If there’s no super-contango, there’s less of an incentive for opportunists to buy and store oil in ways that balances the market and keeps shale and non opec producers in business.
OPEC oil output hits three-year high in June on Iraq - Reuters survey -- OPEC oil supply in June has climbed to a three-year high due to record or near-record output from Iraq and Saudi Arabia, a Reuters survey found, underlining the focus of the group's top exporters on market share. The boost from the Organization of the Petroleum Exporting Countries puts output further above its target of 30 million barrels per day (bpd) and comes despite outages in Libya and Nigeria that curbed supplies. OPEC supply has risen in June to 31.60 million bpd from a revised 31.30 million bpd in May, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants. The group has raised output by more than 1.3 million bpd since it decided in November 2014 to defend market share rather than prices. A final deal between world powers and Iran over Tehran's nuclear work could add to supplies. "If sanctions were to be eased, additional oil from Iran would flood onto the already oversupplied oil market," If the total remains unrevised, June's supply would be OPEC's highest since it pumped 31.63 million bpd in June 2012, based on Reuters surveys. The biggest increase in June has come from Iraq, which has helped push OPEC output higher this year.Exports from southern Iraq have jumped to 3 million bpd after Iraq split the crude stream into two grades, Basra Heavy and Basra Light, to resolve quality issues.
Crude Prices Fall to Six Months Low on Record OPEC Output -- The price of crude oil monday hit a six-month low as the Organisation of Petroleum Exporting Countries (OPEC) pumped at record levels in July, thus creating oversupply, while data from China fuelled concerns about slower growth by the world’s second largest oil consumer. Oil output by OPEC reached the highest monthly level in recent history in July, according to a Reuters survey, with Saudi Arabia and other key members showing no sign of wavering in their focus on defending market share instead of prices. The price of Brent yesterday fell to $51.71 a barrel, after touching an intraday low of $51.50, the lowest since February 2, exactly six months ago. With this drop, Brent is on its longest weekly losing streak since late 2014. Similarly, United States’ West Texas Intermediate (WTI) crude oil fell to $46.73 a barrel after hitting the lowest in four months at $46.35. The front-month prices loss of 20.8 percent in July was the biggest monthly drop since October 2008. It is feared that Brent could fall further towards $50 in the near term while WTI could head to lows of around $42.03 if it breaks a support level at $46.40, Barclays analyst Lynnden Branigan said in a note.
Oil hit multi-month lows on record OPEC output – Oil extended losses on Monday on worries of oversupply as the Organization of the Petroleum Exporting Countries pumped at record levels in July, while weak China data stoked concerns about slower growth at the world’s second largest oil consumer. Saudi Arabia and other key members of OPEC show no sign of wavering in their focus on defending market share instead of prices, as the group’s oil output hit the highest monthly level in recent history in July, a Reuters survey showed. The lack of a plan by OPEC to make room for the return of more Iranian oil fueled supply worries. Iran expects to raise output by 500,000 barrels per day (bpd) as soon as sanctions are lifted and by a million bpd within months, Oil Minister Bijan Zanganeh said in remarks broadcast on Sunday. “The market seems to again focus on the supply situation … one of the difficulties is that Iran may be coming back and there is no obvious sign that OPEC will make room for them,” Ric Spooner, chief market analyst at CMC Markets in Sydney said.
Oil Re-Bloodies the “Smart Money” -- Oil plunged again on Monday, with West Texas Intermediate down over 4%. At $45.17 a barrel, it’s just a hair away from this year’s oil-bust low. During 8 weeks in a row of relentless declines, WTI had plunged 26%. July’s 21% drop was the largest monthly decline since the Financial Crisis collapse in 2008. There’s a laundry list of perceived reasons: The rig count has been rising again. Shale oil companies, like Whiting Petroleum, are bragging about “record” production to prop up their shares. Production in Russia has been strong. And OPEC, powered by Saudi Arabia and increasingly Iraq, raised production in July to 32 million barrels per day. There’s the dreaded surge of Iranian oil onto the world markets. Just this weekend, Iran’s oil minister mused that his country could raise oil production by 500,000 bpd within a week of when the sanctions would be lifted and by 1 million bpd within a month. It gave oil markets the willies. They were already fretting over the slowdown in China, the crude oil inventories in the US, at a record for this time of the year, the oil inventories in other developed markets, and even oil stored in leased tankers. Oil everywhere, it seems. Whatever the perceived reasons, the price of oil has gotten re-crushed, and so has the hope a few months ago that this would be over by now.
US crude falls below $45 for first time since March - Oil prices fell to a fresh March low on Wednesday after a surge in U.S. gasoline stockpiles as the summer season, the country's biggest demand period for motor fuels, nears its end. U.S. crude for September delivery closed down 59 cents, at $45.15 a barrel—its lowest since March 19. September Brent crude futures were flat at $49.50 a barrel after hitting a fresh six-month low earlier in the session. U.S. crude stocks fell last week, while gasoline and distillate inventories rose, data from the Energy Information Administration showed Wednesday. Crude inventories fell by 4.4 million barrels in the last week, compared with analysts' expectations for a decrease of 1.5 million barrels. EIA also reported Wednesday U.S. refiners ran at their highest rates last week since 2005. The utilization rate for U.S. refiners was 96.1 percent, the highest since August 2005. Growing oversupply, slowing demand from China and the prospect of crude flooding onto the market from Iran after Tehran's deal with the West over its nuclear program have knocked 21 percent off the oil price this quarter.
Oil Prices Fall to Multi-Month Lows - WSJ: —Oil prices fell to new multi-month lows Wednesday after weekly inventory data showed a small increase in U.S. crude production and President Barack Obama urged lawmakers to support the Iranian nuclear deal. Light, sweet crude for September delivery settled down 59 cents, or 1.3%, to $45.15 a barrel on the New York Mercantile Exchange, the lowest settlement since March 19. It briefly dropped below $45 a barrel. Brent, the global benchmark, slid 40 cents, or 0.8%, to $49.59 a barrel on ICE Futures Europe. Oil prices have slumped in recent weeks on concerns that persistently high production in the U.S. and elsewhere could keep the market oversupplied through the end of the year. Output remains near multiyear highs in the U.S., Saudi Arabia and Iraq, and the Iran nuclear deal could lift sanctions on Iranian crude exports, allowing the country to sell more oil onto the already-glutted market. In the U.S., government data show that production peaked in March before falling slightly in April and May. However, the latest weekly estimate for production released Wednesday showed that output rose by 52,000 barrels a day to 9.5 million barrels a day in the week ended July 31. U.S. crude-oil inventories fell more than expected last week, the U.S. Energy Information Administration said Wednesday, as refineries ran at the highest rate in years to process the glut of crude oil into petroleum products. But stockpiles of gasoline and other fuels rose in the week, suggesting that consumption isn’t high enough to absorb the oversupply in the market.
Oil trades close to multi-month lows, Brent below $50 – Oil traded near multi-month lows on Thursday with Brent under $50 a barrel as a supply glut persisted despite record U.S. refinery runs, and little sign of any reduction in production. Brent crude futures were down 35 cents at $49.24 a barrel at 1319 GMT after dipping to $49.02 on Wednesday, the lowest since Jan. 30. U.S. crude was down 64 cents at $44.51 a barrel, just off an intraday low of $44.46. “Prices are likely to consolidate or weaken further,” Carsten Fritsch, an oil analyst at Commerzbank, said. “The perception is that over-supply will be there for much longer.” Analysts at Goldman Sachs said in a note that because U.S. shale oil had dramatically reduced the time between when capital is committed and when oil is produced, prices needed to remain lower for longer to “keep capital sidelined and allow the rebalancing process to occur uninterrupted.” Although U.S. crude oil inventories fell by more than expected last week, gasoline stocks unexpectedly rose. This raises the question as to what will happen when the peak gasoline demand season is over. Some U.S. refiners are running at record high rates to take advantage of strong refining margins. But U.S. crude stocks remain at much higher levels than the long-term seasonal average, Fritsch said.
The Oil Crash Has Caused a $1.3 Trillion Wipeout - It’s the oil crash few saw coming, and few have been spared as it erased $1.3 trillion, the equivalent of Mexico’s annual GDP, in little more than a year. Take billionaire Carl Icahn. When crude was at its peak in June 2014, the activist investor’s stake in Chesapeake Energy Corp. was worth almost $2 billion. Today, oil has lost more than half its value, Chesapeake is the worst performer in the Standard & Poor’s 500 Index and Icahn has a paper loss of $1.3 billion. The S&P 500, by contrast, is up 6.9 percent in that time. State pension funds and insurance companies have also been hard hit. Investment advisers, who manage the mutual funds and exchange-traded products that are staples of many retirement plans, had $1.8 trillion tied to energy stocks in June 2014, according to data compiled by Bloomberg. “Everybody was thinking that oil would stay in the $90 to $100 a barrel range.” The California Public Employees Retirement System, a $303 billion fund that provides benefits to 1.72 million people, owned a $91.8 million slice of Pioneer Natural Resources Co. in June 2014. At the time, Pioneer was a $33 billion company and one of the biggest shale producers in Texas. Today, Pioneer is worth $19 billion and Calpers’ stake has lost about $40 million in market value. Since June 2014, the combined market capitalization of 157 energy companies listed in the MSCI World Energy Sector Index or the Bloomberg Intelligence North America Independent Explorers & Producers Index has lost about $1.3 trillion.
Carnage in Junk-Rated Energy Bonds Returns With Plunging Oil - Bond investors that lent to the riskiest energy companies have seen $4 billion of market value evaporate this week as oil trades at a four-month low. SandRidge Energy Inc.’s $1.25 billion of 8.75 percent securities maturing in 2020 issued in May have fallen to 71.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Prices on $1.3 billion of notes sold in 2010 by Chesapeake Energy Corp., an energy producer that halted its stock dividend last month, have fallen to 82 cents on the dollar to yield 11.4 percent. Up until June, the riskiest energy companies had tapped investors for a record $26.9 billion of debt this year. WPX Energy Inc.’s $1 billion issue in July was one of only four debt sales since then. Plunging commodities prices enabled investors to extract concessions from the energy explorer, which sweetened the terms on its bonds and reduced the size of its offering, according to four people with knowledge of the matter. “Oil is dictating how the rest of the market is shaking out,” West Texas Intermediate crude dropped to $44.38 a barrel at 9:45 a.m. in New York, pushing prices down more than 25 percent since it reached a five-month high in May. Natural gas traded at $2.814 per million British thermal units, down from a 2015 closing high of $3.194. Concern is mounting that companies that issued secured debt to repay borrowing-base credit line obligations may continue to burn cash if oil and gas prices fail to recover. Excess supply and sluggish demand will prolong a global rout that’s pulled the price of crude into a bear market, according to estimates by Goldman Sachs Group Inc., which maintained a near-term target for crude of $45 a barrel. The extra yield investors demand to hold junk-rated energy company debt rather than government securities surged to 10 percentage points, or distressed levels, on Friday in New York.
Crude Carnage Continues As Goldman Warns "Storage Is Running Out" -- WTI Crude is back below $45 again this morning - pressing towards 2015 and cycle lows -after Goldman Sachs' Jeffrey Currie warns 'lower for longer' is here to stay, with price risk"substantially skewed to the downside." His reasoning are manifold, as detailed below, but overarching is oversupply (Saudi Arabia has a challenge in Asia as it battles to maintain mkt share, the Russians are coming, and other OPEC members want a bigger slice) and, even more crucially, storage is running out. As Currie concludes, this time it is different. Financial metrics for the oil industry are far worse. As Goldman Sachs' Jeffrey Currie explains... Although spot oil prices have only retraced to the lows of this winter, forward oil prices, commodity currencies and energy equities/credit (relative to the broad indices) have now all retraced to levels not seen since 2005, erasing a decade of gains. This creates a very different economic environment as the search for a new equilibrium resumes: financial stress is higher, operational stress as defined below is more extreme and costs have declined further due to more productivity gains, a substantially stronger dollar and sharp declines in other commodity prices. These differences reflect not only a further deterioration in fundamentals, but also the financial markets’ decreasing confidence in a quick rebound in prices and a recognition that the rebalancing of supply and demand will likely prove to be far more difficult than what was previously priced into the market. This is all in line with our lower-for-longer view. While we maintain our near-term WTI target of $45/bbl, we want to emphasize that the risks remain substantially skewed to the downside, particularly as we enter the shoulder months this autumn.
Energy Credit Risk Hits 1000bps As WTI Crude Nears $43 Handle --As the USDollar surges post-payrolls, WTI Crude futures are re-tumbling (but but but energy stocks were up yesterday!!!). With a $43 handle, WTI does not have far to fall to new cycle lows... and that has spooked professionals in the credit markets (as opposed to the machines and amateurs in the momo stock markets) as Energy credit risk surges back to 1000bps once again...Energy Credit risk is soaring once again...As WTI tumbles near $43 handle...Charts: Bloomberg
U.S. refineries are running at record-high levels - (EIA) - Gross inputs to U.S. refineries exceeded 17 million barrels per day (b/d) in each of the past four weeks, a level not previously reached since EIA began publishing weekly data in 1990. The rolling four-week average of U.S. gross refinery inputs has been above the previous five-year range (2010-14) every week so far this year. The record high gross inputs reflect both higher refinery capacity and higher utilization rates. Lower crude oil prices and strong demand for petroleum products, primarily gasoline, both in the United States and globally, have led to favorable margins that encourage refinery investment and high refinery runs. Refinery margins are currently supported by high gasoline crack spreads that reached a peak of 66 cents per gallon (gal) on July 8, a level not reached since September 2008. For the past several years, distillate crack spreads have consistently exceeded those for gasoline, but since May, this trend has reversed. From 2011 to 2014, distillate crack spreads (calculated using Gulf Coast spot prices for Light Louisiana Sweet crude oil, conventional gasoline, and ultra-low sulfur distillate) averaged a 24 cents/gal premium over gasoline crack spreads. Since May 20, Gulf Coast gasoline crack spreads have averaged 17 cents/gal higher than for distillate crack spreads. Higher demand for gasoline is supporting these margins. Total U.S. motor gasoline product supplied is up 2.9% through the first five months of 2015, and trade press reports indicate that demand is also higher in major world markets such as Europe and India so far this year compared with 2014. Total U.S. petroleum product supplied (a proxy for demand) is up 2.5% through the first five months of the year compared with 2014. Much of the refinery output is reaching global markets, as net exports are 19% higher this year through May.
Feds: Petroleum refineries running at record levels -- American refineries are handling a higher volume of oil than at any point on record, government researchers said Friday. According to the U.S. Energy Information Administration (EIA), gross inputs at U.S. refineries totaled more than 17 million barrels per day each of the last four weeks, a level not seen since EIA began tracking the metric in 1990. The rolling four-week average is higher than any time in the last five years, EIA reported. EIA attributed the bump in refining to low crude oil prices and a high demand for gasoline worldwide, as well as an increase in refinery capacity and utilization rates. It's the second summer in a row EIA has observed record high processing levels. Overall, demand for gasoline in the United States is up almost 3 percent for the first five months of 2015, and it jumped similarly around the world. The U.S. has supplied 2.5 percent more petroleum so far this year than last, and net exports are up 19 percent through May. Taken together, the profits refiners can make by processing crude oil into fuel — a metric called the “crack spread” — are higher now than they've been since September 2008. Refinery volume peaks during the summer months when demand is high, EIA said. Last month, the administration projected refinery runs to drip toward the end of summer and into the fall, but officials expect new highs around the 17-million barrel per day mark next year.
U.S. Oil-Rig Count Rises for Third Week - WSJ: The U.S. oil-rig count rose for the third straight week—this time by six to 670—in the latest week, according to Baker Hughes Inc. BHI -1.49 % The number of U.S. oil-drilling rigs, which is a proxy for activity in the oil industry, had fallen sharply since oil prices headed south last year. The rig count had dropped for 29 straight weeks before rising for two weeks, falling, then rising again. Oil prices fell nearly 60% from June 2014 to a six-year low in March, as soaring production from the U.S. and other countries overwhelmed global demand. There are still about 58% fewer rigs working since a peak of 1,609 in October, though the pace of declines has slowed considerably recently. In late May, several U.S. shale-oil companies said they were ready to bring rigs back into service, setting up the first big test of their ability to quickly react to rising crude prices. According to Baker Hughes, gas rigs were up by four to 213 this week. The U.S. offshore rig count was up four to 38 in the latest week, though it is still off 24 from a year earlier. For all rigs, including natural gas, the week’s total was up 10 to 884, which is down 1,024 rigs from the same period last year.
BHI: Boosted by another gain in oil rigs, total US rig count rises 10 units - The overall US drilling rig count gained 10 units during the week ended Aug. 7 to reach a total of 884 rigs working, according to data from Baker Hughes Inc. A total of 27 units has now gradually come online since the week ended June 19. Six of the units in this week’s rise target oil, adding to their rebound over the past several weeks. Since June 26, the oil-directed count has added 42 units. BHI also reported that the average US rig count for July was 866, up 5 from June and down 1,010 from July 2014. Last week 857 new well permits were issued, compared with 950 new permits issued the previous week, Raymond James & Associates indicated this week in an energy update. Utilizing a 4-week average, weekly permits issued were lower by 43 permits week-over-week. “This is not surprising, given the current oil price environment we have found ourselves in,” RJA said. “With WTI closer to $45[/bbl] than $50[/bbl] right now operators are likely taking a step back to see what happens.” RJA reiterated what it said last week in that if prices fall further or even remain flat, more declines are possible. US drilling edges up Oil-directed rigs now total 670 units working, still down 918 compared with this week a year ago. Gas-directed rigs gained 4 units to 213. Land rigs increased 5 units to 840. Rigs engaged in horizontal drilling jumped 8 units to 672. They’ve added 22 units since hitting a 5-year low on July 17. Directional drilling rigs edged down a unit to 83. Offshore rigs jumped 4 units to 38, representing their biggest rise since the week ended Dec. 5, 2014. Rigs drilling in inland water edged up a unit to 6. In Canada, meanwhile, a trend of 5-straight and 9 out of 10 weeks of gains hit a snag with a 7-unit drop in its overall rig count to 208 rigs working. Losses were led by a 12-unit drop in oil-directed rigs, which had jumped 14 units a week ago. They now total 100. Gas-directed rigs rose 5 units to 108. Canada has 179 fewer rigs working overall compared with this week a year ago.
Liquefied Natural Gas Makes Qatar an Energy Giant - The temperature hovered around 100 degrees on the jetty here, where a set of pipes were connected to a giant red-hulled ship. But the moisture in the air froze on the pipes and flaked off, creating snowlike flurries on the early summer evening.The incongruous sight is common on the Qatari ship, the Al Rekayyat, which carries a frigid fuel known as liquefied natural gas.Natural gas, when chilled to minus 260 degrees, turns into a liquid with a fraction of its former volume. The process has reshaped the natural gas business, allowing the fuel to be pumped onto ships and dispatched around the world.After investing tens of billions of dollars, Qatar is at the forefront. Part of the emirate’s fleet, the Al Rekayyat, run by Royal Dutch Shell, goes to Fujian in China and Yokkaichi in Japan, as well as Dubai and Milford Haven in Wales.Once a poor nation whose economy depended on fishing and pearl diving, Qatar is a relatively new giant in the global energy trade. In the 1970s, Shell discovered the world’s largest trove of natural gas, called the North field, in Qatari waters. But there was no market for the fuel. Potential customers in Europe were too far to reach via pipeline, the usual method. Shell walked away. Looking to the example of Malaysia and Indonesia, Qatar and Hamad bin Khalifa al-Thani, who was then its emir, started promoting L.N.G. in the mid-1990s. Qatar and its energy partners took the business to a new level, developing far bigger and more efficient plants. Last year, Qatar produced about a third of all liquefied natural gas, although Australia and the United States have big export ambitions.
China, Qatar and Ukraine top IMF fossil fuel subsidy leagues -- Fossil fuel subsidies in China, Qatar and Ukraine are some of the highest in the world according to new data from the International Monetary Fund (IMF). China spends $2,271 billion a year backing the oil, gas and coal sector, the largest supporter in dollar terms on the planet, followed by the US with $700m and Russia on $335m. Ukraine spends 61% of its GDP on subsidies – 49% on coal and 8% on gas, while tiny gas giant Qatar tops the per capita index, spending nearly $6,000 a head each year in support of fossil fuels. Support among the world’s G20 is worth $1,000 per person a year, despite repeated pledges by the group of the world’s top economies since 2009 to phase out fossil fuel subsidies. The data shows the UK spends $41 billion a year on subsidies, Japan $157bn, Korea £72bn and Germany $55bn. The hosts of this year’s UN climate conference – France – spend $30bn. Green groups, UN officials and the World Bank have long called for governments to get a grip on subsidies, which are blamed for boosting fossil fuel-linked carbon emissions by 20%.
Global energy subsidies to reach $5.3 trillion, KSA 4th - Global energy subsidies are projected to reach $5.3 trillion in 2015, nearly 6.5 percent of the global GDP, according to a recent study by the International Monetary Fund (IMF). The new data is more than double the IMF’s own post-tax subsidy analysis just a few years ago. In Saudi Arabia, a citizen and expatriate’s per capita share of energy totals $3395 annually, meaning the country ranks fourth globally for energy subsidies per capita out of 135 countries. The population in Saudi Arabia totals 31 million people meaning the government’s total energy subsidies are close to $105 bln per annum. This figure equals nearly 14 percent of the local total production levels, and equals to 29 percent of the Gulf Arab Kingdom’s income from oil. The IMF says such high numbers of energy subsidies cause massive financial losses that could have gone to the global fund. They added that “most of this arises from countries setting energy taxes below levels that fully reflect the environmental damage associated with energy consumption.”
Arab Monetary Fund publishes study on shale oil and gas: The global economy has been witnessing a decline in crude oil prices from the beginning of the second half of 2014. This has been attributed to several factors, including the fall in global economic growth rate in 2014 and the shale oil boom. The US has recorded an increase in shale oil production, which affected crude oil markets. These developments led the Arab Monetary Fund to undertake research and prepare a study on the growing shale oil and gas production and their impact on global oil markets, as well as on the world’s production and consumption of crude oil. The study covers principally issues on the shale oil and gas extraction process from underground sedimentary rocks, elaborating on water resources and chemicals used in the process. It highlights the environmental impact caused by the extraction process, alongside the US strategy on energy security. Furthermore, the study addresses the changes in global reserves of fossil oil and shale oil and gas, and the ranking of countries according to global reserves. It also presents data on global production and consumption of fossil oil, shale oil, and the world and US consumption of energy resources by economic sectors. The study concludes that the production process of shale oil and gas results in high emissions of carbon dioxide and other gases that contributes to global warming and pollution of the environment and groundwater, potentially causing underground rock slides. Given the prevailing conditions in global oil markets, the cost of shale oil and gas production are relatively high at the currently prevailing low crude oil prices. The study shows the impact of water consumption during the extraction process of shale oil and gas on water resources. Thus, shale oil and gas production in countries with limited water resources may prove to be not feasible. In addition, fossil oil extracted from land is available in large quantities in the Middle East and Russia, and is considered a global competitor in terms of production and transportation costs compared to shale oil.
Shale oil, gas production lead to pollution, global warming: Study: Production process of shale oil and gas results in high emissions of carbon dioxide and other gases that contributes to global warming and pollution of the environment and groundwater, potentially causing underground rock slides, says a study conducted by the Arab Monetary Fund (AMF), a regional Arab financial organisation, established by Arab countries in 1976. Furrther, given the prevailing conditions in global oil markets, the cost of shale oil and gas production are relatively high at the currently prevailing low crude oil prices, according to the research note on the growing shale oil and gas production and their impact on global oil markets as well as on the world’s production and consumption of crude oil. The research, propelled by the fact that the global economy has been witnessing a decline in crude oil prices from the beginning of the second half of 2014, shows the impact of water consumption during the extraction process of shale oil and gas on water resources. Thus, shale oil and gas production in countries with limited water resources may not be not feasible. This has been attributed to several factors, including the fall in global economic growth rate in 2014 and the shale oil boom. The United States has recorded an increase in shale oil production, which affected crude oil markets. In addition, fossil oil extracted from land is available in large quantities in the Middle East and Russia, and is considered a global competitor in terms of production and transportation costs compared to shale oil, it says.
Caught in the cross-fire - non-OPEC, non-shale producers - The biggest losers from the current price war between OPEC and the shale producers seem set to be producers outside the Middle East and North America caught in the cross-fire. Expensive production from the North Sea, Canada’s oil sands, offshore megaprojects, weaker African and Latin American members of OPEC, and frontier exploration areas around the world are all being squeezed hard by the price slump. According to oilfield services company Baker Hughes, the number of rigs drilling for oil outside North America has fallen by over 200, or about 19 percent, since July 2014. Rig counts have fallen in every region, with 28 fewer active rigs in Europe, 47 fewer in the Middle East, 33 in Africa, 66 in Latin America and 34 in Asia Pacific. Proportionately, the hardest hit regions have been Europe and Africa, where more than 30 percent of rigs operating in the middle of last year have since been idled. But the slowdown is broad-based, with big downturns in countries as far apart as Mexico, India, Turkey, Brazil, Iraq, Colombia and Ecuador. Major drilling contractors including Transocean, Schlumberger and Baker Hughes have all reported a sharp drop in international business. Schlumberger told investors in July it expects exploration and production spending outside North America to fall by 15 percent in 2015.
Russia is world's largest producer of crude oil and lease condensate -- U.S. Energy Information Administration (EIA): Russia is the world's largest producer of crude oil (including lease condensate) and the second-largest producer of dry natural gas, after the United States. Hydrocarbons play a large role in the Russian economy, as revenue from oil and natural gas production and exports accounts for more than half of Russia's federal budget revenue. However, recent international sanctions on Russia, coupled with low oil prices, have put pressure on the Russian economy. Russia exported more than 4.7 million barrels per day (b/d) of crude oil and lease condensate in 2014, based on data from the Federal Customs Service of Russia. Countries in Asia and Europe received more than 98% of Russia's crude oil exports. Asia accounted for 26% of Russia's crude oil exports, and Europe—which depends on Russia for more than 30% of the region's oil supply—accounted for 72% of Russian crude oil exports. Russia's economy largely depends on energy exports: oil and natural gas revenues accounted for 68% of total export value in 2013. Much of Russian crude oil production comes from the West Siberia and Urals-Volga regions in central and western Russia, but production in East Siberia and Russia's Far East regions has increased, and oil fields in eastern Russia and in the Russian Arctic stand to play a larger role in the country's future production. However, new projects may be delayed or otherwise affected by economic sanctions currently in place.
Russia resubmits claim for energy-rich Arctic shelf - – Russia said on Tuesday it has resubmitted a claim to the United Nations for some 1.2 million square km of the Arctic shelf, a drive to secure more of the mineral-rich region where other countries have rival territorial interests. The Russian economy is overwhelmingly reliant on natural resources and the Arctic’s estimated huge oil and gas reserves are expected to become more accessible as climate change melts and ice and technology advances. This prospect has attracted other nations, including Norway, the United States, Canada and Denmark while international energy companies are planning large drilling campaigns. “The Russian bid covers underwater area of some 1.2 million square km extending for more than 350 nautical miles from the coast,” the Russian Foreign Ministry said in a statement. “A vast array of scientific data collected during many years of Arctic research serves to justify Russia’s rights to this area.” The Arctic rush carries considerable climate risks, campaigners say. Greenpeace, which is calling for a protected sanctuary in the uninhabited area around the North Pole, said on Tuesday Russia’s move was “ominous.” “The melting of the Arctic ice is uncovering a new and vulnerable sea, but countries like Russia and Norway want to turn it into the next Saudi Arabia,”
Shell eyes new Brazilian assets ahead of BG deal - – Royal Dutch Shell is considering investing billions in Brazil, set to become a focal point after the planned acquisition of BG Group, even as it prepares to sell huge chunks of its business to pay for the $70 bln deal. Despite a broad drive to cut spending in the face of persistently low oil prices, Chief Executive Ben Van Beurden remains steadfast in his plans to buy BG, which will transform Shell into the world’s biggest liquefied natural gas (LNG) supplier. The company has announced plans to sell around $30 billion in assets between 2016 and 2018 to improve its balance sheet and focus on its core deepwater oil and LNG business. The BG deal will make Shell the largest foreign investor in Brazil’s coveted deepwater oil fields. According to several sources familiar with the company, it has earmarked up to $5 billion for new acquisitions, mainly in Brazil where state-run oil company Petrobras is selling assets worth nearly $14 billion amid a vast corruption scandal that has engulfed the company and the government. Shell, which expects oil prices to return to $90 a barrel by the end of the decade, is also looking at acquisitions in other future key regions including East Africa, which has huge reserves and where BG is developing several gas fields in Tanzania, the sources said.
Saudi Arabia to tap markets for $US27b as low oil strains finances -- Saudi Arabia is returning to the bond market with a plan to raise $US27 billion by the end of the year, in the starkest sign yet of the strain lower oil prices are putting on the finances of the largest oil exporter. Bankers say the kingdom's central bank has been sounding out demand for an issuance of about 20 billion Saudi riyals ($US5.3 billion) a month in bonds - in tranches of five, seven and 10 years - for the rest of the year. Fahad al-Mubarak, the governor of the Saudi Arabian Monetary Agency, said in July that Riyadh had already issued its first $US4 billion in local bonds, the first sovereign issuance since 2007. But the latest plans represent a significant expansion of that programme, which bankers believe could even extend into 2016, given the outlook for the oil price. Saudi Arabia's resort to further domestic borrowing highlights the challenges facing the region's largest economy amid one of the steepest falls in the oil price in recent decades. Brent, the international benchmark, has dropped from $US115 a barrel in June last year to about $US50 this week. Oil's decline accelerated last November when OPEC, the producers' cartel, decided not to cut output, a significant departure from its traditional policy of trimming production to prop up prices. Saudi Arabia said it was an attempt to defend market share. But the decision to ride out a sustained period of lower prices has put a huge strain on the finances of leading oil exporters, including Saudi Arabia, which requires an oil price of $US105 a barrel to balance its budget.
Saudi Arabia will need deep pockets if it is to win its oil war with US -- News this week that the Saudi government is to raise more than $27bn from bond sales is a sign that the strain of getting involved in a spending battle with the world’s biggest economy is taking its toll. Saudi Arabia is an expensive country to run for the House of Saud. Fearful of Iran, it has imported the latest military kit to show that it is the Middle East’s regional superpower. Higher defence spending has also been needed to fund action in Yemen and to counter the threat from Islamic State. In addition, Saudi Arabia has an unemployment problem that it fears may become a social unrest problem. Two-thirds of the population is under 30 and the unemployment rate for the 16-29 age group is 29%. As the CIA puts it in its World Factbook: “Over 6 million foreign workers play an important role in the Saudi economy, particularly in the oil and service sectors, while Riyadh is struggling to reduce unemployment among its own nationals. Saudi officials are particularly focused on employing its large youth population, which generally lacks the education and technical skills the private sector needs.” The Saudi royal family decided the way to ensure that it was not toppled by the Arab spring was to throw money at millions of potentially angry young men. That, too, is expensive for a country where there is no income tax and petrol costs less than 10p a litre. All this was affordable while oil prices were well above $100 a barrel. The sums don’t add up when a barrel of Brent crude is changing hands for less than $50, and this explains why the International Monetary Fund estimates that Saudi Arabia is on course to run a budget deficit of 20% of national income this year. To put that figure into perspective, at its worst following the deep recession of 2008-09, Britain was running a budget deficit of 11% of GDP.
Saudi Arabia may go broke before the US oil industry buckles - If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade. The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states. The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn. Bank of America says OPEC is now "effectively dissolved". The cartel might as well shut down its offices in Vienna to save money. If the aim was to choke the US shale industry, the Saudis have misjudged badly, just as they misjudged the growing shale threat at every stage for eight years. "It is becoming apparent that non-OPEC producers are not as responsive to low oil prices as had been thought, at least in the short-run," said the Saudi central bank in its latest stability report. "The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience," it said. By causing the oil price to crash, the Saudis and their Gulf allies have certainly killed off prospects for a raft of high-cost ventures in the Russian Arctic, the Gulf of Mexico, the deep waters of the mid-Atlantic, and the Canadian tar sands. Consultants Wood Mackenzie say the major oil and gas companies have shelved 46 large projects, deferring $200bn of investments. The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the CERAWeek energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45pc this year - and not only by switching tactically to high-yielding wells.
Gulf Countries Now Back Iran Deal; Buchanan Explains Republicans' No-Win Situation - It was already difficult to imagine Congress mustering up enough support to override a presidential veto of a bill to kill the Iran deal, but it will be impossible now that Kerry Secures Gulf Support. Gulf Arab countries gave cautious backing on Monday to the nuclear deal with Iran, giving the White House an important diplomatic card as it seeks to gain congressional support for the agreement. Speaking alongside US secretary of state John Kerry after a meeting in Doha, Qatari foreign minister Khalid al-Attiyah said that the agreement which the Obama administration helped negotiate with Iran would make the “region safer and more stable”. “This was the best option amongst other options in order to try to come up with a solution for the nuclear weapons of Iran though dialogue,” With that, some Democrats on the fence will likely be convinced. Republicans should too, but most won't. Pat Buchanan is one of few republicans thinking clearly about Iran. Buchanan explainsThe GOP’s Iran Dilemma. It appears that Hill Republicans will be near unanimous in voting a resolution of rejection of the Iran nuclear deal. They will then vote to override President Obama’s veto of their resolution. And if the GOP fails there, Gov. Scott Walker says his first act as president would be to kill the deal. But before the party commits to abrogating the Iran deal in 2017, the GOP should consider whether it would be committing suicide in 2016. For even if Congress votes to deny Obama authority to lift U.S. sanctions on Iran, the U.S. will vote to lift sanctions in the U.N. Security Council. And Britain, France, Germany, Russia and China, all parties to the deal, will also lift sanctions. A Congressional vote to kill the Iran deal would thus leave the U.S. isolated, its government humiliated, unable to comply with the pledges its own secretary of state negotiated. Would Americans cheer the GOP for leaving the United States with egg all over its face?
After Deal, Europeans Are Eager to Do Business in Iran - Before the ink was even dry on the Iran nuclear deal, European leaders and executives were heading to the airport to restart trade with an Iranian market described in almost feverish terms as “an El Dorado” and potential “bonanza.” Germany sent a delegation five days after the signing of the accord in Vienna on July 14. The French foreign minister, Laurent Fabius, arrived in Tehran on Wednesday. Italian government ministers will get there on Tuesday. Business leaders are to follow soon. They will include 70 to 80 top executives of France’s largest companies in September. Despite the hints of a gold rush, however, the probable opening of Iran’s market holds substantial risks for businesses, and makes it more complicated diplomatically to pull back anew if Iran again pursues the capacity to make a bomb. Perhaps most important, the United States — virtually alone — is largely missing as an economic player. The nuclear agreement does little to lift a raft of American sanctions stemming from Washington’slisting of Iran as a state sponsor of terrorism and violator of human rights. Europe has far lower bars, raising the prospect that the United States and its allies will quickly have vastly divergent levels of investment in Iran that could make the Europeans reluctant to reimpose sanctions if the deal is violated. In addition to the hard-won terms of the accord, the lure of the Iran market was no doubt one factor that European nations and the United States weighed in deciding to support a deal.