Sunday, February 21, 2016

a Russian / OPEC oil freeze, a Deloitte report on coming bankruptcies, why our oil output is holding up, and new records for oil & gas supplies again

an agreement between Russia and a handful of OPEC countries to freeze oil production pretty much dominated most of the news out of the oil patch this a well publicized secret meeting between Saudi oil minister Ali al-Naimi and Russian energy minister Alexander Novak in Doha on Tuesday, they agreed that they would freeze their oil output at current levels if other large producers would also agree to do so...since Russia had closed out the year with their oil production at record levels and Saudi output has remained near its August record high, their agreement in effect was to not make the glut worse by producing more, and not any indication of a production cutback...Qatar and Venezuela, who instigated the meeting, also agreed to participate under the same terms, though neither seemed to be on the cusp of an output increase anyway...although the US markets were closed for holiday on Monday, rumors of the meeting drove oil futures 1.1% higher to $30.15 a barrel in off market electronic trading, a rally which persisted briefly on Tuesday until traders realized that not much was likely to come of the agreement, sending oil down nearly 4% to close at $29.04 a barrel on Tuesday as hopes for an end to the glut faded...

still, since Ali al-Naimi, who has been CEO of Saudi Aramco since 1983 and the face of OPEC since the mid 1990s, was personally involved, we have to consider this as a serious attempt to get on top of the oil glut, as unlikely as it is to produce a binding agreement...although Iran welcomed the agreement to freeze oil production, they clearly wont do so themselves, believing the glut was caused by others who ramped up production while western sanctions forced them to curtail theirs; Iran is still expected to increase their production from last year's 2.8 million barrels per day to 3.3 million b/d by the end of 2016 and to 3.7 million b/d at the end of 2017.. initially, the United Arab Emirates’ energy minister refused to discuss a cap to crude oil production, but by Thursday,the UAE had indicated their willingness to go along and Iraq also indicated it is open to freezing its oil production at January levels if big producers inside and outside of OPEC would do the same...with these large producers on board, US oil prices traded above $31 a barrel on Thursday before closing at $30.77 a barrel...still, OPEC members have historically cheated on such quotas, and even Russia said that even if the production freeze is agreed to, Russia would still be allowed to increase output by the rules laid out at Doha... so, with record oil inventories weighing on the market, oil prices fell back to close the week at $29.64 a barrel, just 20 cents higher than a week earlier...

one other piece of news we ought to mention before we move on to this week's reports was a new report published Tuesday by the auditing and analytics firm Deloitte that forecast more than a third of oil producers are at high risk of bankruptcy this year, as low oil prices propagate further losses and simultaneously restrict their ability to raise additional cash to pay their debts, which most of them have been able to do this past year... Deloitte looked at more than 500 oil and natural gas exploration and production companies worldwide and found that 175 of them, which have a combined total of more than $150 billion in debt, are likely to be heading for bankruptcy restructuring unless oil prices recover sharply...that would be an unprecedented number of failures, according to John England, vice chairman of Deloitte, who told the financial times "We could see E&P bankruptcies surpass Great Recession levels as companies struggle to remain solvent"

as we mentioned last week, at least 67 U.S. oil and natural gas companies already filed for bankruptcy in 2015 and five more filed in January...this week saw Paragon Offshore, a Texas operator of drilling rigs from the Gulf of Mexico to the North Sea, file for Chapter 11 bankruptcy protection, and saw both Energy XXI Ltd. and SandRidge Energy miss interest payments...the rest of the excrement could hit the fan as soon as next month; a Bloomberg study of 61 shale companies in their index of North American independent oil and gas producers found that the industry must come up with $1.2 billion in interest payments by the end of March, or go to court to explain why the did not...Chesapeake Energy, the operator of more than half of Ohio's wells, is certainly one we expect to see seek protection soon; last week we mistakenly thought their report was due this week, but as it turns out, it wont be out until the 24th; by then, we should know how the rest of the frackers have done in the 4th quarter, so we'll take a look at their prospects for survival next week, once we have all the reports in hand.

New Records for Gasoline and Crude Oil Stores, and Why Oil Output is Holding Up

this week's stats from the US Energy Information Administration, delayed until Thursday because of the Monday holiday, showed that our supplies of crude oil and gasoline in storage have again both risen to new record levels, as our oil imports rose, our oil production slipped, and refineries increased their consumption of crude for the first time this usual, the major reason for the increase in oil inventories this week was a big jump in our imports of crude oil, which rose by 795,000 barrels per day to average 7,919,000 barrels per day during the week ending February 12th, up from an average of 7,124,000 barrels per day during the week ending February 5th...while that was 11.5% higher than the 7,105,000 barrels per day of oil we imported during the 2nd week of February a year ago, oil imports are notoriously volatile week to week (as one VLCC tanker can be carrying more than 2 million barrels), so the EIA's weekly Petroleum Status Report (62 pp pdf) reports imports as a 4 week moving average...that EIA report showed that our crude oil imports averaged over 7.7 million barrels per day over the last 4 weeks, 5.8% above the same four-week period last year...

at the same time, EIA data showed our field production of crude oil fell by 51,000 barrels per day, from 9,186,000 barrels per day during the week ending February 5th to 9,135,000 barrels per day during the week ending February 12th...that was our largest drop in crude output since the second week of October and leaves our crude production 1.6% below the 9,280,000 barrels per day we were producing in the second week of February last year, although it remains on a par with the oil production figures we saw in September and October...recall that last week we showed long and short terms graphs of our oil production, which showed that our domestic oil production rose from around 5 million barrels per day before fracking, to top 9 million barrels per day last November, where it has held fairly steady since, despite the fact that the number of new wells being drilled has dropped by more than 70%...this week a series of graphs from the EIA were posted at several oil sites around the web which go a long way to explain that apparent anomaly, so we'll include them here and explain what they mean..

Bakken crude oil output per well daily by month of production:

February 16 2016 Bakken production by month

the above graphic, and the three below, all come from the EIA's monthly Drilling Productivity Report, and they are all constructed in the same manner; each graph has 10 production graph lines within it, one for each year since 2007, and a grey line for pre-2007 production, for each of the major 4 oil producing basins tracked monthly by the EIA...each annual line then shows the average production of fracked wells for that given year for each month that oil wells started that year have been in operation...thus in the graphic above for the Bakken, the lightest yellow line shows the average production record of all Bakken wells that were fracked and began producing oil in 2007; following along that line, we can see that in the first month 2007 wells began to produce, their output averaged 150 barrels of oil per day; by the time the 2007 wells were 12 months old, their production dropped to 75 barrels per day, and by the time they were 24 months old, their production had slipped to 50 barrels per day...go out to the end of that light yellow 2007 line, and we see that production of those 2007 wels had slipped to 30 barrels per day by the 60th month of operation, and presumably continues to deplete further to this day...(NB: my numbers are estimates; the data was not supplied)

if we then look at the 2008 line, we see considerable improvement from 2007; wells started that year produced 250 barrels per day the first month, were still producing 125 barrels per day by the 12th month, 80 barrels per day in the 24th month, and were still producing nearly 50 barrels per day after 5 years had passed....production per newly fracked Bakken well then got incrementally better each year until 2015, when new wells were producing 440 barrels per day when first fracked, and still around 180 barrels per day 10 months with that introduction to what these graphs show us, we'll include the similar graphs for each of the other major producing shale basins below, and then see what we can glean from them about the past year's - and future - oil production..

Eagle Ford crude oil output per well daily by month of production:

February 16 2016 Eagle Ford production by month

Niobrara crude oil output per well daily by month of production:

February 16 2016 Niobrara production by month

Permian crude oil output per well daily by month of production:

February 16 2016 Permian production by month

one observation that should be immediately obvious from just glancing at this set of charts is that the new wells that started producing this year have been more productive, sometimes considerably so, than the ones that started producing in 2014, which were in turn more productive than those fracked in 2013...for instance, the first month of production for 2013 wells in the Bakken was 320 barrels per day, it was then about 370 barrels per day for wells completed in 2014, and then rose to 440 barrels per day for wells brought on in 2015; for the Eagle Ford, the first month yielded an average of 320 barrels per day for 2013 wells, 370 barrels per day for 2014 wells, and 420 barrels per day for last year’s wells; for the Niobrara, the first month yielded a 125 barrels per day average for 2013 wells, 170 barrels per day for 2014 wells, and 220 barrels per day for 2015 wells, and for the Permian, charted directly above, the first month averaged less than 100 barrels per day for 2013 wells, rose to 155 barrels per day for 2014 wells, and 230 barrels per day for wells completed last year...the reasons for the increases vary; crews are becoming more experienced at what they need to do to get an optimum yield, efficiencies in the methods continue to be introduced, and many frackers are now drilling and fracking longer laterals, obviously increasing the area fracked and hence the wells output...but what is pretty clear is that for these 4 major basins, less producing wells have been producing more, thus maintaining their total level of output...

since about 5 million barrels per day of our national 9 million plus barrels per day oil production is now from horizontally drilled and fracked wells, this increased production from each well that's brought on goes a long in explaining why our oil output has not fallen off more, despite the drop in the number of rigs actually drilling for oil from 1609 in October of 2014 to under 450 working rigs recently; every well that went into production this year was producing much more than the ones from prior years which were being slowly depleted...considering the fact that since the fracking operation, which initiates the oil flow, costs twice to three times as much as drilling the well, many companies actively manage their inventory of drilled wells and hold off on fracking until they can contract to sell the expected oil production at a suitable prices...a recent NY Times article puts the number of such drilled but uncompleted (DUCs) wells at 4,000 nationally, a figure consistent with other reports on DUCs i've seen from industry sources (ie, a December Rigzone article put the number of DUCs in the Permain alone at 2000)...the same NY Times article, focusing on Anadarko, says they began warehousing DUC wells and effectively storing oil underground since late 2014, when prices started's reasonable to assume that other oil producers did the same; after all, who would want to blow the first few (& best) months of your fracked well production when oil prices have just gone in the tank?

after oil prices flirted with $40 a barrel in January and March of 2015, oil prices rose back to the $60 a barrel range in May and June, which coincidentally was when our oil output suddenly spiked and set a record with production at 9,610,000 barrels per day during the week ending June 5th...that's pretty good evidence that the $60 a barrel oil this spring brought out some of that production that had been being held back since late 2014...we'll repeat that oil production chart we posted last week, and a chart with oil prices over the last 18 months, so you can more clearly see how that worked out...

February 13 2016 crude production

the above chart, which we posted and explained last week, shows in blue the weekly volume of our oil output from September 2014 through the week ending February 5th, while below we have a current graph of contract oil futures prices over the same period...we can see that the first drop in a 5 year run-up of our oil production from 5 million barrels per day to 9 million barrels per day started in March, when oil prices were at their lowest...then shortly after oil prices moved back up into the $60 a barrel range, oil production spiked to a new record high ('unexpectedly' to everyone writing about it then) appears that the $60 a barrel price was just enough to get producers to complete some of their DUC wells, a large number of which appear to have started production during the last two weeks of May, producing the spike we see on the crude chart above, and leading to the record production we saw in the week ending June 5th...then as oil prices tanked again in July, fewer new wells were brought on, and hence production fell back to the 9.1 to 9.2 million barrels per day range we saw in September and October, as that initial surge we saw in the production graph tapered off...

February 20 2016 oil prices

what we can draw from this observation is that should oil prices rise towards $60 again, a large number of those 4,000 DUC wells will likely be completed (ie, fracked) and they'll start our production charts show, oil production in the first month after fracking has been averaging between 220 barrels per day per well and 440 barrels per day per well....should oil prices spike, then, it's certainly possible we could see an incremental increase in production of between 500,000 and 1,000,000 barrels per day, on top of what we're already put that amount into perspective, the threat by Iran that they'd be adding a half million barrels per day to the global oil glut is what caused oil prices to tank this winter, so it's possible US producers could easily add a similar amount themselves, should they start fracking their backlog…of course, that would only exacerbate the glut, and hence drive prices down again...thus, absent an agreement between Russia and OPEC to actually cut oil production (or a war in the middle east, which is always possible), $60 a barrel, or whatever price it takes to bring the DUC wells to completion, certainly looks like a ceiling for oil prices for some time to come...

to return to our weekly data, this week's reports showed that refinery processing of crude oil rose for the first time since the week ending December 25th, as US refineries used 15,848,000 barrels per day during the week ending February 12th, 338,000 barrels per day more than the 15,510,000 barrels per day they processed during the week ending February 5th, as the US refinery utilization rate also rose for the first time this year, from 86.1% in the week of the 5th to 88.3% of their operable capacity last week...our gasoline production rose again, from 9,553,000 barrels per day during week ending February 5th to 9,675,000 barrels of gasoline per day during week ending February 12th, 5.4% more than the 9,180,000 barrels per day gasoline production of a year earlier, and again the most gasoline we've produced in a week since December...likewise, our output of distillate fuels (ie, diesel fuel and heat oil) rose by 306,000 barrels per day to 4,663,000 barrels per day during week ending the 12th, which was also 34,000 barrels per day higher than our distillate production of the same week a year ago...

with the increase in production, unused supplies of both major refinery products also rose...our end of the week supply of gasoline in storage rose for the 14th week in a row, increasing from 255,657,000 barrels as of February 5th to a record 258,693,000 barrels as of February 12th....that was 6.4% more than the 243,132,000 barrels of gasoline that we had stored on February 13th last year, which was at that time a 15 year high for gasoline stores...likewise, our distillate fuel inventories also rose, increasing by by 1,399,000 barrels to 162,375,000 barrels, due to a combination of reduced demand for both heating and for oil field work, which itself is a major consumer of diesel fuel....while not a record, our distillate inventories are now nearly 35 million barrels, or 27.4% higher than the same week last year, and above the upper limit of their average range for this time of year...and even with the pickup in refining, however, we still had another 2,147,000 new barrels of crude oil left unused at the end of the week, and hence that was added to our already nearly full storage tanks to set another new record for our stocks of crude oil in storage, which rose to 504,105,000 barrels at the end of the week...our crude oil glut has been setting records like that on and off since January 30th of last year, when we first topped 400 million barrels of oil in storage for the first time in the EIA records...

This Week's Rig Count

the past week again saw another large percentage drop in the number of rigs drilling in the US, as it's clear that virtually no one in the oil and gas business can break even with $30 oil and sub $2 natural gas...Baker Hughes reported that their count of active drilling rigs fell by 27 over the past week to 514 rigs as of February 19th...that's down from the 1310 rigs that were drilling for oil or gas in the same week a year ago, and down from the recent rig count peak of 1931 rigs that were being worked on September 26th of 2014....another 26 rigs that had been drilling for oil were pulled out this week, leaving 413, down from the 1019 oil rigs that were deployed on February 20th last year, and down from the  fracking era high of 1609 oil drilling rigs that were working on October 10, 2014...gas rigs were down by 1 for the week, leaving 101 gas rigs still drilling on February 19th, down from 289 gas rigs that were working a year earlier, and down from the 356 gas rigs that were deployed on November 11th, 2014...

17 more horizontal rigs were stacked this week, after 25 were stacked last week and 29 were stacked the week before that, cutting the count of active horizontal rigs down to 416, which was down from the 979 horizontal rigs that were deployed the same week last year, and down from the recent high of 1372 horizontal frackers that were drilling on November 21st of addition, 9 vertical rigs were taken out of service, leaving 50 on February 19th, down from the 203 vertical rigs that were deployed at the end of the 3rd week of February a year ago... and a single directional rig was also pulled out, leaving 48, down from the 128 directional rigs that were in use last February 20th...

of the major shale basins, the large Permian basin of west Texas and eastern New Mexico once again saw the greatest reduction, as 7 more rigs were idled there, still leaving 165 rigs still drilling there, which was still down from 362 rigs working in the Permian a year addition, the Eagle Ford of south Texas saw 4 rigs pulled out; that left the Eagle Ford with 54 rigs, down from 160 a year earlier...the Williston basin of North Dakota had 3 rigs pulled out and stacked this week, leaving the Williston with 36 rigs, down from 123 a year ago and down from 220 rigs at the Bakken peak...2 rigs were removed from both the DJ-Niobrara of the Rockies front range and the Mississippian of southwest Kansas and bordering states; that left the DJ-Niobrara with 16 rigs, down from 39 a year earlier, and the Mississippian shale with 8 rigs, down from 48 a year earlier...single rigs were pulled out of the Cana Woodford of Oklahoma and the Barnett Shale of the Dallas-Ft Worth area; that left the Cana Woodford with 33, down from 43 a year earlier, and left the Barnett with 3 rigs, down from 11 rigs on February 20th of 2015...and someone decided to push their luck and added 2 rigs in the Granite Wash of the Oklahoma-Texas panhandle region; that brought the Granite Wash back up to 10 rigs, which was still down from the 36 rigs drilling in the Granite Wash on the same weekend a year ago..

the Baker Hughes state count tables show that Texas got rid of a net 12 rigs, still leaving 236 in the state as of the 19th, down from the 576 rigs that were deployed in Texas a year earlier...North Dakota saw 3 rigs pulled this week, leaving 36, down from 119 a year ago...Louisiana and Mississippi both had 2 rigs idled this week; those reductions left Louisiana with 45 rigs, down from 109 a year earlier, and Mississippi with one rig still drilling, down from 7 on February 20th of 2015...finally, Colorado, Kansas, Nebraska, New Mexico and Wyoming each saw one rig pulled out this week; that left Colorado with 19 rigs, down from the 47 rigs that were drilling there a year ago, left Kansas with 7 rigs, down from the 18 deployed in the state a year earlier, left Nebraska with 1 rig, down from 3 rigs a year ago, left New Mexico with 21 rigs, down from 72 a year earlier, and left Wyoming with 10 active rigs, down from the 35 rigs deployed in Wyoming last February 20th...


Dynegy Jumps into FirstEnergy, AEP ‘Bailout’ Fray - “In response to the exorbitant and counter-productive subsidies currently under consideration for FirstEnergy and American Electric Power (AEP),” Houston-based Dynegy announced that it is offering two counter-proposals to the Public Utilities Commission of Ohio (PUCO) that it claims “will save the state’s ratepayers billions of dollars over the next eight years, promote and protect  Ohio jobs, aid in Ohio’s compliance with the Clean Power Plan, and encourage consumer and business growth.” Dynegy is owns and operates 35 power plants in eight states nationwide – California, Connecticut, Illinois, Ohio, Massachusetts, Maine, New York, and Pennsylvania – all of which are natural gas-fired or coal-fired.. The company is jumping onto the bandwagon after Exelon Generation intervened (Docket No. 14-1297-EL-SSO) in the ongoing, contentious FirstEnergy rate case late last month – asserting that it could offer ratepayers a better deal. The first proposal would, the company said, save Ohio consumers and businesses $5 billion by providing the same amount of power promised under the FirstEnergy and AEP power purchase agreements (PPAs) at lower prices –$2.5 billion each in the FirstEnergy and AEP territories – over the eight-year term of the proposed PPAs. The power provided under this proposal “would be generated by Ohioans, at Ohio plants, for Ohioans,” Dynegy said, adding that it “owns about 5,400 MW at 10 different sites in Ohio – more than FirstEnergy’s 5,300 MW –employs hundreds of Ohio workers, and is the third largest retail electric provider in the state.” Furthermore, Dynegy said, its power plants “use the region’s vast fuel supplies, including its abundant and clean natural gas, providing further benefits to the state.”

Ohio Senate candidate in GOP primary wants to raise fracking taxes - Columbus Dispatch - A Republican Senate candidate in Franklin County says it’s time for legislative action to increase the severance tax on fracking, an issue that remains contentious for Ohio leaders. Aaron Neumann, a management consultant running for the open 16th district seat currently occupied by term-limited Sen. Jim Hughes, is proposing an incremental increase in Ohio rates until they are “on par with neighboring states'.”“We want to and will keep our markets competitive, but the current severance rates as dictated by the legislature are unsustainably low and we only have one shot to get our money’s worth for these precious resources,” Neumann said. “A modest increase and smart investments will ensure that the whole state benefits while the communities who put in the effort receive their fair share of the reward.” Lawmakers and Gov. John Kasich have been butting heads for three years over the severance tax, which Kasich has repeatedly tried to raise, calling the current rate a "total and complete rip-off to the people of this state."

Injection well appeal rejected by Franklin County court - The Athens County Fracking Action Network had another appeal of the K&H Partners injection well near Torch ruled against in a Franklin County court last week. Frankin County Common Pleas Judge Patrick Sheeran ruled that the Ohio Oil & Gas Comission lacks jurisdiction over a permit ACFAN was appealing. The permit had been issued by the Ohio Division of Oil and Gas Resources Management in 2013 for a second injection well by K&H Partners at its site in Troy Township in eastern Athens County. ACFAN appealed that permit to the Ohio Oil & Gas Commission. The commission asserted that the permit was a drilling permit and not an injection permit and so the commission lacked jurisdiction to consider an appeal of its issuance. A drilling permit allows the creation of the well while an injection permit allows oil-and-gas horizontal hydraulic fracturing wastewater to be injected into it. The Franklin County court upheld the commission’s stance that the permit appealed was for drilling the well only. Sheeran said that the state Legislature had not given the Oil and Gas Commission authority to hear drilling permit cases. ACFAN’s next legal move could be to appeal Sheeran’s decision to the 10th District Court of Appeals in Franklin County. The group has not indicated yet whether they intend to do so.

Here's The New Study The Fracking Industry Doesn't Want You to See - Though fracking industry proponents scoff at any intimation their so-called vital industry poses even scant risks to the public, a new study published in Toxicology and Applied Pharmacology just proved those critics right — fracking wastewater causes cancer. Using human bronchial epithelial cells, which are commonly used to measure the carcinogenesis of toxicants, researchers confirmed fracking flowback water from the Marcellus Shale caused the formation of malignancies. After conducting further tests on live mammalian subjects, researchers found five of six mice“injected with cells transformed from well water treatments developed tumors as early as 3 months after injection,” including a tumor in one mouse that grew to over 1 cm in size in just five months. A control group did not develop any tumors for the six months of the study period. According to the study, performed by scientists from the Department of Environmental Medicine, as well as Biochemistry and Molecular Pharmaceutical at New York University, the Robert Wood Johnson Medical School at Rutgers, and esteemed partners from universities in China — results indicate fracking flowback water causes cancer. Implications of the report’s findings would be difficult to overstate considering how fracking wastewater is generated, stored, and treated, and how often spills, leaks — and even the wastewater injection process, itself — can lead to contamination of the potable supply. A concise but thorough explanation of the fracking process can be found in the introduction to the report, “Malignant human cell transformation of Marcellus Shale gas drilling flow back water,” which states: HVHHF is an advanced technology that creates fractures in the rock that extend out as far as 1000 ft away from the well. The pressure is reduced after the fractures are created, which allows water from the well to return to the surface, also known as flow back water [or flowback]. The flow back water contains complex proprietary chemical mixtures, but also naturally occurring toxins such as metals, volatile organics, and radioactive compounds that are destabilized during gas extraction. On average, 5.5 million gallons of water is used … to hydraulically fracture each shale gas well, and 30% to 70% of the volume returns as flow back water.”

Marcellus jobs market takes another beating -- Low natural gas prices just keep hitting oil and gas industry workers in the Marcellus Shale. The state Department of Labor figures show 2,262 fewer oil and gas jobs when comparing quarter two of 2015 to 2014.  Cabot Oil and Gas announced in a press release a 58 percent reduction to $325 million as opposed to $774 in 2015. The company plans to drill about 30 wells in 2016. Cabot plans to drill 25 wells in the Marcellus Shale and 5 in the Eagle Ford Shale and complete a total of 55 wells. By mid-February of this year it is expected the rig count will be reduced to one total rig in the company. According to StateImpact and Stephen Beck, a US oil and analyst for IHS, Cabot’s reduction is significant because the company operates in an area of the Marcellus that is most economically productive. Other companies that report layoffs include Southwestern energy, with nearly 40 percent of their workforce, and Range Resources, with a reduction of 55 jobs.  Energy industry stocks dropped as Chesapeake Energy Corporation hired lawyers to restructure, Anadarko Petroleum Corporation announced a dividend reduction and Whiting Petroleum Corp’s credit was downgraded by Moody’s. Director of the Office of Energy Markets and Financial Analysis for the US Energy Information Administration (EIA) Lynn Westfall explains a few reasons why production is declining: Low prices challenge the justification for running rigs, as production from wells decreases at an increasing rate. The lower rig count does not allow companies to keep up with the declined rate causing decreased production In addition, logistically there is not enough pipeline to remove the oil.

Pennsylvania family fails in court to save sugar maples from pipeline (Reuters) - A federal judge ruled on Friday that a Pennsylvania family that runs a maple syrup business cannot stop most of their trees from being cut down to make way for a shale gas pipeline, but he stopped short of charging them with contempt of court.Judge Malachy Mannion of the U.S. District Court in Scranton said his previous order allowing the tree-cutting could not be challenged in court.But he said lawyers for the company building the Continental Pipeline failed to prove the five defendants who own the property were guilty of obstructing the tree cutting.  "But I'm going to direct that U.S. Marshals are empowered to arrest or detain anyone who obstructs the felling of trees," he said. "Then they will be brought before me for a contempt hearing."  Monty Morgan, a former Ohio state trooper who is regional security director for Constitution Pipeline Co, was unable to identify any of the defendants as those who have blocked workers from cutting the maples this month. The $875 million Continental Pipeline, due to be operational this autumn, would run 124 miles (200 km) from Montrose, Pennsylvania, to Albany, New York. It would bring gas from fracking wells to the New York and New England markets."I think this is the most realistic outcome we could have expected," said Megan Holleran, spokeswoman for North Harford Maple, a family-run syrup business in New Milford.  Her mother, Catherine Holleran, is one of the defendants. Three others - Michael W. Zeffer, Maryann Zeffer, and Patricia Glover - are aunts or uncles. Dustin Webster, the fifth defendant, is a cousin. The family has owned the land since moving from Long Island in the early 1950s.

Landowners win case against Bluegrass Pipeline (AP) — Landowners who had opposed efforts to put a natural gas pipeline across 13 counties have been victorious in the Kentucky Supreme Court. The court decided Thursday not to review a May 2015 ruling from the Kentucky Court of Appeals that said Bluegrass Pipeline LLC did not have the power of eminent domain because it was not a utility regulated by the state, according to multiple media reports. Because the Supreme Court didn’t review the appeal, the appellate court’s decision stands, said Kentuckians United to Restrain Eminent Domain attorney Tom FitzGerald. “Today is a good day for Kentucky landowners and for freedom,” FitzGerald posted on his Facebook page. The pipeline would have snaked across nearly 200 miles of Kentucky, carrying natural gas liquids from fields in Ohio and Pennsylvania to refineries and ports along the Gulf Coast. Natural gas liquids are used by the petrochemical industry to make plastics, adhesives, fuels and other products for domestic and foreign markets. Many residents opposed the project due to environmental concerns. In 2014, the companies proposing to build the pipeline halted the project because it hadn’t received the necessary customer commitments.

Virginia justices hear appeal involving natural gas pipeline (AP) — The Supreme Court of Virginia is considering the arguments of a group of southwest landowners in the path of a natural gas pipeline. Justices heard an appeal Tuesday in Richmond involving the Mountain Valley Pipeline. Its route covers 300 miles in West Virginia and Virginia. The landowners from Giles (jyls) County objected to surveyors coming on their land to plot a path for the pipeline. A Circuit Court judge rejected the case, but Appalachian Mountain Advocates took the appeal to the Supreme Court. They are questioning a state law that allows pipeline surveyors on their land under Virginia’s eminent domain law. Appalachian Mountain Advocates says it successfully prevented Mountain Valley Pipeline from entering private property in West Virginia. Justices typically rule in a month to six weeks.

Dominion outlines new national forest route for pipeline — Energy companies behind the Atlantic Coast Pipeline have carved a new proposed route through parts of West Virginia and Virginia in response to federal concerns about the national gas pipeline’s initial path through sensitive national forest areas. The alternate released Friday by Dominion Resources Inc. would reduce by one-third the pipeline’s footprint through the George Washington and Monongahela national forests, but add 30 miles to the 550-mile project. The alternate route would also affect 249 new landowners in both states, Dominion said. Dominion said it worked extensively with the U.S. Forest Service to select the new route after foresters rejected the initial plan, in part because of fears it would harm a salamander that lives in high elevations in the Shenandoah Mountains and is found nowhere else in the world. Aaron Ruby, a spokesman for the energy company, said Dominion believes the new path will satisfy Forest Service concerns. Dominion is the lead company proposing the 42-inch pipeline from West Virginia, through Virginia and into North Carolina. While politically popular, the energy project has found scattered opposition along its route from landowners, environmental groups and conservation officials.

New Gas Pipeline Route Tries To Spare Nature But Affects More Landowners -  Less than a month after a federal agency rejected the route of an interstate gas pipeline for wanting to cut through two national forests, the company returned with a longer route that put more landowners at risk of having land seized through eminent domain. “There is no good place to put this thing,” said Ernie Reed, president of Wild Virginia, in an interview with ThinkProgress.  The Atlantic Coast Pipeline, unveiled in 2014, would transport 1.5 billion cubic feet of natural gas per day. If approved by the Federal Energy Regulatory Commission, the builders would seize any land necessary via eminent domain to build an interstate line that would carry gas from the Marcellus Shale basin — one of the largest natural gas reservoirs in the world — to supply power stations in Virginia and North Carolina.  The companies involved were told last month to amend the existing proposed route as it lacked “minimum requirements” to safeguard both the Monongahela and the George Washington National Forests. After that, the companies announced they had come up with an alternative path that is about 30 miles longer than the original 550-mile route. It would affect more landowners than before, but avoid sensitive wildlife. Dominion, which partnered with Duke Energy, Piedmont Natural Gas, and AGL to develop the project, said it’s submitting a preliminary analysis of the route to FERC this week. In a statement, it noted the new plan would affect about 249 new landowners in Randolph and Pocahontas counties in West Virginia, as well as others in Highland, Bath, and Augusta counties in Virginia.

Pipeline opponents ask board to consider new US oil exports (AP) — Opponents of a proposed pipeline project in Iowa want the state utilities board to take additional evidence that crude oil produced in the United States is now being shipped overseas, which would bolster their argument that North Dakota oil to be shipped through the so-called Bakken pipeline may have no benefits for Iowa. It’s been more than two months since the Iowa Utilities Board ended hearings and gathering documents on the project, which would stretch diagonally across 1,300 parcels of land and 18 counties in Iowa at a cost of $1 billion. Board members began deliberations last week on whether to grant a hazardous liquid pipeline permit to Dakota Access, a Texas-based company owned by major petroleum industry players, and whether the company can use eminent domain to force owners of 296 parcels of land to allow the pipeline to be buried on their property. At issue is a 2006 law that prohibits private development of agriculture land without the owner’s consent — unless the developer is a utility. The board must decide whether Dakota Access meets the definition of a utility, such as an electricity or telephone provider. Opponents say it isn’t because it provides no service directly to Iowa residents. Pipeline opponents claim it is not because there is no assurance the project will provide even an indirect service to Iowa residents, much less be a “public convenience and necessity” as required by law. But Dakota Access has said the consumers will benefit by helping to reduce U.S. reliance on imported oil, stabilizing prices and improving national security. The company said the project creates jobs and provides an economic benefit to local communities during construction. It also contends that moving oil via pipeline is safer than rail or truck transportation.

Texas cities ask federal officials to cancel drilling leases — Some North Texas cities and environmental groups have asked federal officials to halt plans to allow gas drilling under a lake that’s a drinking water source for millions and has a dam cited by the U.S. Army Corps of Engineers as being in hazardous condition. As many as 259 acres are up for auction for natural gas leases at Lewisville Lake, according to the Bureau of Land Management. Nearby residents fear possible drinking water contamination and earthquakes that could further threaten stability. Protesters want the BLM to remove the property from an April 20 auction in Santa Fe, New Mexico, and commission a new environmental study of gas drilling. “These direct impacts from oil and gas activities have not been adequately studied and represent an unacceptable level of risk to DWU,” director of Dallas Water Utilities Jody Puckett wrote in a letter to BLM. Dallas Water Utilities provides drinking water to 2.4 million people in the city and surrounding communities. But Ed Ireland, the executive director of the Barnett Shale Energy Education Council, told the Dallas Morning News that there has been extensive gas drilling in Texas — including under Lewisville Lake — with no evidence of drinking water contamination.

Fracking fears prompt protests over leasing near lake — North Texas cities, from Highland Village, population 15,500, to Dallas, are protesting plans to auction federal lands for gas-well exploration around a lake that supplies drinking water to millions. The plans to auction several hundred acres around and under Lake Lewisville, about 35 miles northwest of Dallas, threaten both drinking water for about 2 million consumers and the integrity of the earthen dam that the U.S. Army Corps of Engineers consider the nation’s eighth-most-hazardous, local officials and environmental groups say. There are no gas wells in Highland Village, but the city does own five water wells, and threat of contamination to them and to the lake, prompted the city to file a written complaint with the Bureau of Land Management, which is offering the 259 acres for lease. The 10-year mineral-lease auction is set for April 20 in Santa Fe, New Mexico. “We are not opposed to gas drilling and the process that goes along with it,” Michael Leavitt, Highland Village city manager said in a statement. “Our concern is the potential harm that could be caused to our potable water supply if there is drilling under Lewisville Lake. “It is for that reason the council directed us to submit a protest letter.”  Highland Village’s northern boundary is formed by the lake, which holds about 2 million acre feet, or 2.5 billion tons of water. The corps of engineers owns the land on which the lake is built and the cities of Dallas and Denton own the water, said Thomas Taylor, executive director of the Upper Trinity Regional Water District. The water district wholesales Lake Lewisville water to 25 cities and about 250,000 customers.

Methane in Texas water wells likely natural, report says - A report from the University of Texas further contributes evidence that hydraulic fracturing has not contaminated drinking water with methane in Parker County, or anywhere else in Texas.The research reaffirmed findings from the Railroad Commission of Texas, which showed through nitrogen fingerprinting that water contamination was naturally occurring. The main objective of the project was to improve understanding of shallow natural gas, which is sometimes found in groundwater wells. During the project, researches took more than 900 samples from aquifers in the footprint of major Texas plays. A detailed chemical analysis was then performed on the water samples.Throughout the study area, researchers reached similar conclusions: the presence of high dissolved methane concentrations from 784 freshwater wells in the Barnett, Eagle Ford, Haynesville and Delaware Basin shale plays was likely natural and not related to fracking.The study states a number of natural pathways could explain the presence of methane in aquifers.“There is no need to invoke gas leakage to explain field observations. Structural and stratigraphic features explain the presence of thermogenic methane in shallow groundwater in the Haynesville and Barnett shale plays.” Researchers said oil and gas-related sources of contamination cannot be ruled out, but contamination from well integrity failure is not likely to occur.

EDITORIAL: Fracking fluids should be identified for safety - Beaumont Enterprise: Most places in Texas are OK with fracking, a few aren't. One thing they should share in common, however, is an understanding of which chemicals are being injected underground in their communities to understand any potential threats to water supplies. Unfortunately, state law allows drilling companies to withhold the identity of chemicals if they consider them to be proprietary. But the law doesn't require drillers to release specific formulas for drilling fluids or the quantities of various substances. All it mandates is a general listing of them. That's fair. Most frackers use similar types of fluid mixtures to inject underground so that inaccessible pockets of oil and gas can be extracted. Even if an unusual ingredient is listed, competitors won't know if a driller uses it by the ounce or the ton. No drilling company will cancel a project because it has to disclose all the components of its fracking fluids. The overriding goal here should be accountability and public safety.

Marathon Oil to focus on Eagle Ford assets - Marathon Oil detailed its diminished drilling strategy on Thursday, with most resources focused on Eagle Ford shale. The Houston-based company announced a 2016 capital program of $1.4 billion dollars, down more than 50 percent from 2015 and more than 75 percent below 2014. Approximately $600 million in capital spending is set aside for Eagle Ford, of which $520 million is for drilling and completions. The 2016 drilling program will continue focusing on co-development of the Upper and Lower Eagle Ford horizons, as well as the Austin Chalk . However, Marathon said its Eagle Ford rig count will be reduced to five in the first quarter. In 2015, the company operated an average of 11 rigs in Eagle Ford shale. Marathon will continue to work in Oklahoma Resource Basins, allocating $204 million for drilling in the Sooner State. Bakken shale projects will receive slightly less, with a $193 million budget.

Anadarko to build man camp in West Texas --  Anadarko Petroleum will open a new housing facility in West Texas near El Paso, according to the Houston Business Journal. The 77,190-square-foot man camp, located in Mentone, will be able to support 200 Anadarko employees and contractors, according to Target Logistics. The facility will include a basketball court, movie theater, game room, laundry facilities and a convenience store. A ribbon-cutting was held Feb. 10. Constructing a new man camp goes against the trend of vacancies in similar facilities in Bakken and Utica shale plays. According to a Bloomberg report, vacancy rates in Williams County, North Dakota reached 70 percent. The struggle to house numerous migrant workers during the boom had reversed. Many buildings sat vacant or unfinished. Anadarko, however, sees opportunity in the Delaware Basin, a formation stretching from West Texas to New Mexico. The  Woodlands-based company holds about 600,000 gross acres with an estimated 1 billion barrels of recoverable oil.

New Export Supply from Down Under and the U.S. Demand for liquefied natural gas has been flat recently, but liquefaction/LNG export capacity is on the rise. The resulting supply/demand imbalance along with the crash in crude oil prices has sent LNG prices to unexpectedly low levels, and raises questions about the competitiveness of all the new Australian and U.S. projects coming online in 2016-20. Today, we continue our examination of the fast-changing international market for LNG with a look at the new capacity being added to an already saturated LNG market, and how U.S. LNG exporters might fare in a hyper-competitive world.  This is Episode 3 in our series about recent developments in the international LNG market. The series’ aim is to describe the market’s changing supply/demand dynamics, and how they are likely to affect U.S. natural gas producers and LNG exporters in particular. In Episode 1, we recapped how the decisions to convert four U.S. LNG import terminals to liquefaction/LNG export terminals (and to build a greenfield liquefaction/export terminal in Corpus Christi, TX) were spurred by expectations that gas from the Marcellus, the Eagle Ford and other prolific shale plays would be so plentiful (and so inexpensive) that the U.S. could help meet a significant share of what was then seen as fast-growing worldwide LNG demand.  We also laid out several factors that will help determine how U.S. players—gas producers, midstream companies and LNG exporters—will fare in the very different market (low oil and LNG prices, flat LNG demand, too much liquefaction capacity) that emerged instead.

5.1 and 3.9 magnitude earthquakes recorded in Oklahoma — A magnitude 5.1 earthquake shook northwest Oklahoma and was felt in seven other states on Saturday (Sunday, PH time), the U.S. Geological Survey said, the third-largest temblor ever recorded in the state where the power and frequency of earthquakes has dramatically increased in recent years. A magnitude 5.1 earthquake shook northwest Oklahoma and was felt in seven other states on Saturday. The earthquake centered about 17 miles (27 kilometers) north of Fairview in northwestern Oklahoma occurred at 11:07 a.m. and was reportedly felt across Arkansas, Iowa, Kansas, Missouri, Nebraska, New Mexico and Texas, the USGS said. A second quake measured at magnitude 3.9 struck 10 minutes later, followed at 11:41 a.m. by a magnitude 2.5 quake. Both were in the same area of the larger temblor and about 100 miles (160 kilometers) northwest of Oklahoma City. The strongest earthquake on record in Oklahoma is a magnitude 5.6 temblor centered in Prague, about 55 miles (90 kilometers) east of Oklahoma City, in November 2011 that damaged 200 buildings and shook a college football stadium in Stillwater, about 65 miles (105 kilometers) away.  Oklahoma’s stronger and more frequent earthquakes have been linked to the injection of the briny wastewater left over from oil and gas production underground. Regulators have recommended reducing the volume or shutting down some of the disposal wells. Oil and gas operators in Oklahoma, where the industry is a major economic and political force, have resisted cutting back on their injections of wastewater.

Several earthquakes, including a 5.1-magnitude quake, reported in Fairview - A 5.1-magnitude earthquake rocked the Oklahoma late Saturday morning. At 11:07 a.m., the U.S. Geological Survey reported that the earthquake was centered 17 miles northwest of Fairview. Several aftershocks and smaller earthquakes were recorded in Fairview. Quakes of 3.9, 3.5, 3.1, 3.0, 2.8, 2.7, 2.5 and 2.5 were reported Saturday morning and afternoon.  A 3.7-magnitude quake was reported at 6:30 p.m. Saturday. The KOCO 5 newsroom received several phone calls from people who felt the earthquake throughout Oklahoma. We also have heard reports of the earthquake being felt in Kansas and Texas.  No major damage has been reported, but cracks appeared in homes after Saturday morning's earthquake.  A 3.1-magnitude earthquake was reported Saturday afternoon about 5 miles north-northwest of Medford, according to the USGS.   The Oklahoma Corporation Commission released an advisory Saturday afternoon stating a full plan to address the continuing earthquakes in areas like Fairview, Cherokee and Medford.  The plan's full details will be announced Tuesday, but a general summary shows it will involve a "large-scale regional reduction in oil and gas wastewater disposal for an approximately 5,000 square mile area in western Oklahoma." The advisory also stated more than 200 Arbuckle disposal wells will be impacted.

Oklahoma sees dramatic spike in earthquakes - CBS News: -- The third most powerful earthquake in Oklahoma's recorded history jolted the northern part of the state this weekend. The magnitude 5.1 quake -- centered near Fairview -- was felt in seven states overall. Oklahoma has recently seen a dramatic spike in earthquakes. The ground keeps shaking in Oklahoma, and more violently. This year has already seen 140 quakes 3.0 or larger. That's an average of 2.5 earthquakes per day. Before 2008, the average was one and a half per year.  The small town of Fairview is quickly gaining a big reputation for large quakes. It was the epicenter of Saturday's five point one. And just last month, a 4.8 quake. "It just kind of rattled, rattled, rattled, and got stronger and got stronger," said Susie Kidd Marten. Geologist Todd Halihan teaches at Oklahoma State and believes water disposal wells used after hydraulic fracturing is linked to the quake increase. "Unfortunately, a side effect, now we are generating seismicity due to the injection wells," he said. "These are pretty startling when you feel them. There's now a lot of people experiencing them on a pretty broad scale." Homeowner Kathy Matthews said the state has mixed up its priorities.  "There's a greater impact on the economy when you have hundreds of millions of dollars of damage worth of real estate that's been damaged by that activity," she said. So far Oklahoma has no plans to stop hydraulic fracturing.

State Rep: Earthquakes, not budget, most important state issue  -- The 5.1 magnitude earthquake that shook Oklahoma Saturday came as Rep. Richard Morrissette prepares for a public forum on earthquakes. "Every hour of everyday they're talking about it," Rep. Morrissette said of his constituents. Morrissette, D-Oklahoma City, wanted to give residents another chance to hear from the experts on the topic. He's hosting the public forum on February 23, at UCO. Among the guests who will speak is activist Erin Brockovich. "This is absolutely the issue of the moment. I know the budget, every body's swirling around it, but when our homes, business and our lives maybe at stake here, I think that probably takes precedence," he said. Contrast Morrissette's viewpoint to Gov. Mary Fallin's response when FOX 25 asked why she didn't bring up earthquakes in Oklahoma's State of the State Address. "I didn't put earthquakes in there because I wanted the budget and our challenges as a state and how we're going to overcome this to be our biggest topic of discussion," she said but added "I also felt like earthquakes were so important that I had a stand-alone press event the week before my State of the State because it is an issue that concern families, with their homes, their largest investment, for the most part."

Despite Extra Earthquake Funding, State Still Lacks Lead Seismologist --Despite a $1 million transfer from the state’s emergency fund to the Oklahoma Geological Survey, the agency still has not replaced its top seismologist. Austin Holland worked for OGS for years, often working 80-hour weeks investigating causes of an unprecedented increase in Oklahoma’s earthquakes. But he left the agency last year, taking a job in New Mexico, a state that shakes far less frequently than Oklahoma. Not long after Holland left OGS, so did Amberlee Darold, the agency’s only other full-time seismologist. The number of earthquakes in Oklahoma jumped from 50 in 2009 to more than 5,800 last year, making the state the most seismically active in the lower 48 states, according to NPR’s State Impact. Records indicate the heavy workload may not have been the sole reason the two left. As reported by EnergyWire, Bloomberg and other media outlets, OGS and its scientists were pressured to downplay connections between the state’s earthquakes and oil and gas activity. The agency and state officials, once reluctant to connect earthquakes with the energy industry, have since acknowledged most of the quakes are “very likely” caused by injection wells, as years of studies have concluded.

Oklahoma Earthquake Comes Ahead of Plan to Reduce Fracking - - A 5.1 magnitude earthquake that hit Oklahoma over the weekend highlights recent concerns about geological instability due to hydraulic fracturing operations, as the state prepares to issue a plan this week to reduce large-scale “fracking” operations. The epicenter of the earthquake was 17 miles northwest of Fairview, and was not linked to any immediate reports of serious injuries or significant damage. However, it is part of a disturbing trend of instances of “induced seismicity”, or earthquakes caused by human activity. Hydraulic fracturing, commonly known as fracking, is a controversial gas extraction process, where a mixture of water, sand and fluids that the gas industry has fought to keep secret is injected into the ground at extremely high pressure, cracking shale deposits and freeing trapped natural gas, which can then be removed. Those fluids are then sucked from the ground and often disposed of in wastewater wells. As fracking operations have increased, researchers have noted a dramatic increase in the number of earthquakes in the central and eastern United States over the past few years, including Oklahoma. The Oklahoma Corporation Commission (OCC) has indicated that it will release a plan tomorrow that is designed to reduce large-scale fracking operations in the western part of the state, including the Fairview area hit by this latest earthquake. The area has been so prone to earthquakes that it required special attention from the OCC, which directly links the quakes to fracking operations. The plan calls for a reduction in disposal volume of 27 wastewater disposal wells.

Oklahoma agency calls for wastewater cuts to stem earthquakes (AP) — Oklahoma oil-and-gas regulators on Tuesday issued their most far-reaching directive yet in response to a surge in earthquakes by asking the operators of nearly 250 injection wells to reduce the amount of wastewater they inject underground by 40 percent. The Oklahoma Corporation Commission wants operators over the next two months to reduce injections by more than 500,000 barrels of wastewater daily in an area that covers more than 5,200 square miles of northwest Oklahoma. The commission’s plan has been in the works since late October and was not influenced by a 5.1-magnitude quake that hit the area Saturday, said commission spokesman Matt Skinner. People reported feeling Saturday’s quake, the third-strongest in state history, in as many as 13 other states, including in Georgia, 900 miles away.  As the Corporation Commission was preparing to announce its move, the Sierra Club filed a lawsuit asking that three major Oklahoma energy producers reduce wastewater volume. The number of earthquakes with a magnitude 3.0 or greater has risen in Oklahoma from a few dozen in 2012 to more than 900 last year. Recent peer-reviewed studies suggest injecting high volumes of wastewater could aggravate natural faults. In Oklahoma’s six most earthquake-prone counties, the volume of wastewater disposal increased more than threefold from 2012 to 2014. Most operators comply with commission directives, though one — SandRidge Energy Inc. — initially refused to comply before reaching an agreement with the agency last month. Oklahoma House Speaker Jeff Hickman, whose home is 20 miles from the epicenter of Saturday’s quake, is pushing a bill to make clear the Corporation Commission has the power to order wells to shut down or reduce volume.

Environmental groups sue oil companies over Oklahoma earthquakes –  – As Oklahoma leaders continue to contemplate what to do about the rise in earthquakes in the Sooner State, a pair of environmental groups have filed a lawsuit. Sierra Club and Public Justice filed a federal lawsuit against three energy companies that use hydraulic fracturing in the state. The groups say the production waste from fracking have contributed to an alarming increase in earthquake activity over the past few years. “The number of earthquakes in Oklahoma has increased more than 300 fold, from a maximum of 167 before 2009 to 5,838 in 2015. As the number of earthquakes has increased, so has their severity. For example, the number of magnitude 3.5 earthquakes has increased one hundred fold from 4 in 2009 to 220 in 2015. These waste-induced earthquakes have toppled historic towers, caused parts of houses to fall and injure people, cracked basements, and shattered nerves, as people fear there could be worse to come,” the lawsuit states. The lawsuit demands that New Dominion, Chesapeake Operating and Devon Energy Production Company “reduce, immediately and substantially, the amounts of production waste they are injecting into the ground.” The lawsuit was filed following a 5.1 magnitude earthquake that was recorded near Fairview. The quake was the third strongest ever recorded in the state. “The science laid out in our case is clear,” Paul Bland, the executive director of Public Justice, said. “Oklahoma may be on the verge of experiencing a strong and potentially catastrophic earthquake. All evidence points to alarming seismic activity in and around fracking operations, and that activity is becoming more frequent and more severe. This lawsuit, which we filed after the three companies named in our suit refused to take steps of their own, is an action brought by residents of Oklahoma in an attempt to protect their property, their communities and their lives.”

Earthquakes Trigger Sierra Club Lawsuit Against Fracking Companies - - The Sierra Club and Public Justice have filed a lawsuit against a number of oil and gas companies they accuse of contributing to earthquakes in Oklahoma and throughout the country, due to the use of injection wells related to hydraulic fracturing gas mining operations, more commonly known as “fracking”. According to a Sierra Club press release issued on February 16, the complaint was filed on Tuesday in federal court in Oklahoma. It names Chesapeake Operating LLC., Devon Energy Production Co. and New Dominion LLC as defendants, indicating that their injection wells triggered earthquakes there and in Kansas.The fracking lawsuit (PDF) comes after a 5.1 magnitude earthquake that shook central Oklahoma this weekend; the third strongest quake recorded in the state’s history.  As fracking operations have increased, researchers have noted a dramatic increase in the number of earthquakes in the central and eastern United States over the past few years, including Oklahoma. “The dangers associated with fracking and its related processes has never been more clear than it is here in Oklahoma,” Johnson Bridgwater, Director of Sierra Club’s Oklahoma Chapter, said in the press release. “The lawsuit notes that the latest quake was one of a string of earthquakes that have shook the state since the beginning of the year. “Oklahoma City residents were awakened on January 1 with a 4.1 magnitude earthquake” the lawsuit notes. “Six days later, 4.3 and 4.8 magnitude earthquakes occurred back-to-back.”By January 16, the state had been hit by 131 earthquakes this year alone, ranging in magnitude from 2.01 to 4.8, the lawsuit indicates. The lawsuit calls for substantial reduction in production waste and calls for the companies to reinforce vulnerable structures and for the establishment of an independent earthquake monitoring and prediction center.

Central Oklahoma shale crude oil still attracting new investors -- Crushing oil prices are hitting U.S. shale producers hard and the outlook for 2016 shows little sign of a let-up. Production has continued to prove resilient but the odds are that something has to give at these prices. However there are still sweet spots in U.S. shale plays where producers are increasing acreage and drilling new wells. The headline plays that many analysts talk about are the Delaware and Midland basins in the West Texas Permian but as we outline in today’s blog there is also continued interest in the relatively less well-known central Oklahoma SCOOP and STACK plays.   The Anadarko basin covers approximately 60,000 square miles centered in the western part of Oklahoma and the Texas Panhandle and extending into western Kansas and southeast Colorado. Like the Permian Basin in West Texas, the Anadarko is certainly not a “new” oil and gas basin but has been extensively and successfully exploited since the 1920s using conventional vertical drilling technology. Over the past four years the basin has been successfully targeted by producers using horizontal drilling and fracturing technology to extract unconventional oil and condensates from shale. The Anadarko basin is also similar to the Permian Basin in that it contains multiple layers of oil-bearing formations that can be exploited by drilling at different depths.   The Anadarko basin encompasses four main shale era plays - the Mississippian Lime to the northeast, Cana Woodford to the southeast, Granite Wash to the southwest and Cleveland/Tonkawa to the northwest. The Anadarko shale is less consistent and harder to “unlock” hydrocarbons from as compared with the bigger plays like the Bakken or the Eagle Ford. However - as we have discussed in previous blogs – it has been the subject of much excitement in the drilling community with huge wells coming in that promise rich rewards. We talked about some of these opportunities back in December 2012. We also referred to the ingenuity of Anadarko producers in cracking the code back in October 2013.

Bernie Sanders’ Fracking Ban Is an Economic Disaster for Energy-Producing States - Many energy-producing states are currently struggling in the wake of falling oil and natural gas prices. Thousands of people are losing their livelihoods in the energy sector, and lower severance tax payments are projected to produce numerous state budget shortfalls, which could end up reducing state spending on social programs. But as bad as the situation in many states now looks, it would be far worse if Sen. Bernie Sanders (I-VT) gets his way and ends up successfully banning fracking, a plan he recently proposed as a way to reduce the carbon dioxide emissions Sanders says is causing global warming. A ban on fracking would be disastrous for everyone. It would drive up energy prices (don’t forget gasoline cost more than $4.00 per gallon a few years ago), and it would cripple the economies of numerous states, including New Mexico and Ohio. New Mexico has the fifth largest proven oil reserves and the seventh largest reserves of natural gas in the nation, and many of these sources are accessible only through fracking. Oil and gas production are vital to the economy in New Mexico. The average annual wage paid in the energy industry is about $63,000, more than 57 percent higher than the average wage in the state. Nearly 22 percent of New Mexico’s population is living beneath the poverty line, a figure that’s sure to decline should fracking be banned.

Colorado anti-fracking measures: 1 down, 10 remain - Denver Business Journal: A ballot proposal asking Colorado voters to ban fracking will be pulled from consideration for the 2016 ballot, according to a member of the group that filed the proposal in December. But the other 10 proposals filed by Coloradans Resisting Extreme Energy Development (CREED) remain on the table, said Karen Dyke, who’s listed in state documents as the contact person for the 11 initiatives. “We’re going to pull the one that’s the ban, not the other ones,” Dyke told the Denver Business Journal on Friday. “We’re down to 10, but we still have plenty to work with." Tricia Olson, a spokeswoman for CREED, said in an email: "While we didn’t want to eliminate any proposals, we always knew that we could only run one to two. At this point, it’s a process of elimination to get down to one or two." But while a proposal to ban fracking statewide may be off the table, the other initiatives backed by CREED are just as bad, said Karen Crummy, a spokeswoman for Protecting Colorado's Environment, Economy and Energy Independence, an issues committee formed by the industry in 2014 to oppose anti-fracking initiatives. “They withdrew it (the fracking ban proposal) because they know the vast majority of Coloradans support responsible oil and natural gas development and are against banning an entire industry,” Crummy said via email.

Colorado Supreme Court Considers Legality of Fracking Bans | Heartlander Magazine: Colorado is on the front lines of a battle between states and local communities who want to ban or impose moratoria on fracking, overriding state control of the oil and gas industry. On December 9, the Colorado Supreme Court heard challenges brought by the cities of Longmont and Fort Collins. The cities claim they should have the power to ban fracking, regardless of decisions made by state agencies. In 2012, voters in Longmont approved an amendment to its city charter banning fracking. In 2013, voters in Fort Collins approved a five-year moratorium on fracking. Lower courts overturned both limits, citing prior Colorado Supreme Court decisions determining the state, not localities, have control over oil and gas development. The courts found state regulators were solely authorized to regulate fracking. ‘Fracking is Beneficial’ Jonathan Lockwood, executive director for Advancing Colorado, a pro-environment, free-market advocacy group, says Colorado is the epicenter of attacks on the energy industry from out-of-state anti-fracking groups seeking to evict the energy industry from the state, despite the fact the industry is one of the bright spots in the state’s economy.  “Out-of-state special-interest groups with extreme views have flooded our state with anti-energy campaigns, preyed on vulnerable communities, and tried to confuse voters,” Lockwood said. “Protesters in the past have been organized by the same people who organize minimum wage hike protests. The chants are even the same. At one demonstration, a protester held a sign that said, ‘Burn cop cars, not tar sands,’ showing how out-of-control these anti-energy activists really are.

Hoping for a Price Surge, Oil Companies Keep Wells in Reserve - — The price of oil keeps dropping. But that didn’t stop a work crew from drilling a well recently on what was once a cornfield, carefully guiding the last sections of 13,000 feet of pipe spiraling into the hard Niobrara shale with a diamond-tipped bit.Their well, one of hundreds drilled by Anadarko Petroleum in eastern Colorado’s Wattenberg field this year, could someday gush as many as 800 barrels of crude oil a day. But Anadarko is not planning to produce a drop of crude from the well for at least another year because the price of oil is now so pitifully low.The well here is just one of more than 4,000 drilled oil and natural gas wells across the country producing nothing, but ready to be tapped quickly.Many constitute a new form of underground storage, a new well inventory strategy for an industry in distress, one that has been forced to lay off tens of thousands of workers, decommission most of its rigs and write down assets. For individual companies like Anadarko, the deferred completions — known in the oil business as D.U.C.s (an acronym for drilled but uncomplete) — are a bet on higher oil prices than the current level of about $38 a barrel, which is about 60 percent lower than in summer 2014. They are viewed by oil executives as a way to hoard cash as service costs plummet and are a flexible lever to rapidly increase production whenever oil rises again.

Anadarko drills Colorado high schoolers on fracking (Slideshow) - Denver Business Journal: Chemistry students at Windsor High School got a close look at the mechanics of hydraulic fracturing this month, courtesy of Anadarko Petroleum Corp. Representatives of Anadarko (NYSE: APC) -- one of Colorado's largest oil and gas operators -- and a contractor visited the school in the heart of Colorado's energy country to talk about fracking and to show how it's done. And Bloomberg News photographer Matthew Staver was on hand for the class. See his photos above. The school visit was part of an effort by Anadarko and others in the energy industry to more broadly discuss the widely used technique to extract oil and gas trapped in rock deep underground. The push comes as the industry faces as many as 10 possible Colorado ballot initiatives that could tighten regulation. Staver says that Anadarko "has deployed 160 landmen, geologists and engineers to Rotary clubs, high schools and mothers' groups. They demonstrate how drilling works and try to convince people that the technique and the accompanying chemicals and geological effects don’t harm the environment or public health."

Climate change activists disrupt Utah oil and gas auction  (AP) — Utah environmentalists hope their disruption of a federal oil-and-gas lease auction and the purchase of development rights on a small stretch of land by an author and activist bring attention to a nationwide push to halt fossil fuel extraction on Western lands. But oil and gas industry officials say environmental writer Terry Tempest Williams’ bid on at least 800 acres is insignificant. And, they say the group’s refusal to stop singing that led them to be escorted from the Tuesday auction in Salt Lake City will give the industry fuel to push the BLM to hold online auctions in the future. The events evoke memories of climate change activist Tim DeChristopher, who served 21 months in prison for sabotaging a 2008 Utah auction to thwart drilling near Utah’s national parks by bidding on $1.8 million of lands he couldn’t pay for. But, Williams is not expected to face any consequences as long as she pays several thousand dollars she’ll owe for the rights. Tempest Williams’ made her bid after nearly 100 protesters were escorted peacefully out of the auction when they refused to stop singing, said Bureau of Land Management spokesman Ryan Sutherland. There were no arrests or confrontations. Holding signs that said, “Our lands, our future” and “#KeepItInTheGround,” they marched to the convention center and took their seats in the gallery before breaking into song with the refrain, “I hear the voice of my great granddaughters saying, keep it in the ground.”

North Dakota crude production continues to climb - Last week state energy officials announced that North Dakota crude production in November rose slightly, despite low oil prices.  However, as reported by The Wall Street Journal (WSJ), North Dakota Department of Mineral Resources Director Lynn Helms warned oil and gas companies that current production rates are not sustainable at current prices. “We need $50 oil to keep production flat. We cannot sustain production at sub-$30 prices,” Helms said at a news conference. November production rates, the latest data available, increased by 0.4 percent, or 1.17 million barrels per day, compared to October figures. The state’s natural gas production rate, meanwhile, increased 0.67 percent from the previous month and reached a record high of 1.67 billion cubic feet of gas per day, as reported by the North Dakota DMR. According to state data, North Dakota sweet crude is currently priced at around $20 per barrel after accounting for its discounted trade. There are currently 41 drilling rigs operating in the state compared to the 200 operating this same time in 2012. Helms added that if benchmark West Texas Intermediate prices continue to hover around the $30 per barrel mark, Bakken shale output will likely decline. Oil production in North Dakota peaked at 1.23 million barrels per day in December 2014.

North Dakota has 'big concern' with hedge funds buying oil assets | Reuters -  North Dakota's energy regulator said on Wednesday he is worried about hedge funds and other investment groups buying oil assets in the state and conducts background checks on potential acquirers. Billions of dollars in investment capital have started to flow toward the oil industry, with fund managers and others sensing a long-term buying opportunity for wells, pipelines and other energy assets. Lynn Helms, head of North Dakota's Department of Mineral Resources, said he is worried some buyers might have a lack of experience running oil or natural gas facilities, which normally pose safety risks. "It is a big concern," Helms said on a conference call with reporters to discuss monthly oil production. Under North Dakota law, producers must bond their wells so the state has insurance to pay to plug wells in case an operator abandons an oil field. Because the state regulator has control over those bonds, Helms or his supervisors at the North Dakota Industrial Commission could block potential asset sales by not approving a bond transfer, a nightmare scenario for an industry eager for any kind of cash infusion.

New rules aimed at North Dakota's oil industry — North Dakota regulators are proposing new rules aimed at the oil industry. A slate of proposed rules were unveiled Tuesday, including a requirement that would require bonding for all crude and saltwater pipelines. Another new rule would require berms of at least a foot high to be built around a well site. Department of Mineral Resources Director Lynn Helms says public hearings on the proposals will be done in several cities in April. He says October is the earliest the rules could be in place. North Dakota Petroleum Council President Ron Ness says his group has not had a chance to study the proposals. He says subjecting the oil industry to more rules adds costs to companies that already are dealing with depressed crude prices.

Governor urges oil company to preserve ‘viewscape’ - Gov. Jack Dalrymple urged the oil company developing a massive drilling unit to preserve Little Missouri State Park as the company continues working in the area. Dalrymple’s comments came Tuesday after the Industrial Commission received an update on the Corral Creek-Bakken Unit, a 30,000-acre oil development near Killdeer that includes the state park. “I hope that we do let people know out there, including ConocoPhillips, that we would like to continue to stay back from the Little Missouri as much as possible and continue to preserve the viewscape as much as possible,” Dalrymple said. ”I think they know that. But let’s keep reminding them that remains the same.”When the unit was proposed, ConocoPhillips planned to drill 81 wells in addition to 12 wells that were already drilled in the unit. The timeline was anticipated to be 3½ years. But the company added more wells targeting the Three Forks formation, and now expects to continue drilling until at least 2019, a ConocoPhillips representative told the Oil and Gas Division in January. As of last month, the unit had 120 producing wells, 14 wells that were drilled or partially drilled and ConocoPhillips planned to add 60 more.

North Dakota oil drops by 29.5K barrels daily in December -— North Dakota’s Department of Mineral Resources says the state’s oil production decreased by about 29,500 barrels a day in December, while natural gas production slipped below a record level set a month earlier. The agency says the state produced an average of 1.15 million barrels of oil daily in December. The December production was about 75,200 barrels per day less than the record set in December 2014. North Dakota also produced 1.67 billion cubic feet of natural gas per day in December, down slightly from the previous record set in November. The December tally is the latest figure available because oil production numbers typically lag at least two months. There were 41 drill rigs operating in North Dakota’s oil patch on Wednesday. That’s down from an average of 64 rigs in December.

Low-volume North Dakota oil wells may suspend production (AP) — Hoping to help North Dakota’s struggling oil industry, state regulators on Tuesday decided to allow owners of low-volume “stripper” wells to suspend production while they await a rebound in crude prices. After being idle for 12 months, a North Dakota oil well has to resume production or be abandoned and plugged. North Dakota’s Industrial Commission agreed to extend that another year. Gov. Jack Dalrymple, Attorney General Wayne Stenehjem and Agriculture Commissioner Doug Goehring — all Republicans — make up the commission. Lynn Helms, director of the commission’s oil and gas division, said the extension would allow companies to “wait for better oil prices” and give hope that the low-volume wells could eventually come back on line instead of being forever plugged. North Dakota has about 3,100 stripper wells, which are also called marginal wells. They are broadly defined as those that produce fewer than 40 barrels of crude daily, though industry and state officials say most produce fewer than 10 barrels each day. Helms said there are currently about 1,180 idle wells. Ron Ness, president of the North Dakota Petroleum Council, said the extension would give the owners of low-producing wells much-needed time. “We don’t want to walk away from these,” he said. It’s the second time since 1999 that state regulators have agreed to extend the time before idle oil wells must be plugged.

Oh-Oh -- February 18, 2016

Bakken oil was selling for $16 / bbl yesterday.
The oil producers are adding as much as three million bopd of excess crude oil, globally.
Iran has yet to hit its stride.
Russia says that even if the "production freeze" is agreed to, by the rules laid out, Russia would be allowed to increase output.
It was just reported today that the crude oil output from the federal Gulf of Mexico will hit a record high in 2017.
And today the EIA provides us this graphic (via John Kemp over at Twitter):

State order means delays for oil pipelines  - Two proposed oil pipelines through northern Minnesota have been delayed by two years. Enbridge Energy has proposed building the Sandpiper line from North Dakota through northern Minnesota to its facility in Superior, Wis. The Canadian company also wants to replace an aging line from the Alberta oil sands region. Last month the Minnesota Public Utilities Commission said the company can't proceed with permitting until an environmental analysis is completed. Enbridge has challenged that order. "We've always agreed with undertaking a thorough environmental analysis of these projects," said Lorraine Little of Enbridge. "It's just a matter of what's the fair way to do that." If the order stands the pipelines wouldn't be completed until 2019, Little said. Several environmental groups and Indian tribes oppose the proposed pipeline routes. They say they threaten pristine waterways in northern Minnesota. But they're supported by many local governments and unions.

Enbridge pushes back pipeline projects -  Another delay on the time table of two oil pipeline projects in northern Minnesota has opponents of the projects declaring victory. Enbridge Energy, the company behind the proposed Sandpiper and Line 3 projects, announced this week both pipelines won’t be ready until early 2019. December’s decision by the Minnesota Public Utilities Commission to require a fully completed environmental impact statement to be done by state agencies before either project gets approved is likely to drive the cost of both projects higher, according to an Enbridge press release. Spokeswoman Lorraine Little confirmed costs were likely to rise, although the release nor she were able to state exactly what the new price tags would be. The Sandpiper project was originally scheduled to come online this spring. The 616-mile pipeline from the North Dakota Oil Patch to Superior, WI, and was expected to cost $2.6 billion. The Line 3 replacement would run from northern Alberta to Superior. The 1,031-mile project was estimated to cost $7.5 billion, with the American portion costing $2.6 billion.

Enbridge says Sandpiper pipeline won't start up until 2019 - (AP) — Enbridge Energy Partners said Wednesday that it expects to push back until 2019 the start-up dates for both its proposed Sandpiper crude oil pipeline across northern Minnesota and a replacement for its existing Line 3 pipeline because of the need for an environmental review. Company executives told analysts during a quarterly earnings call that their “preliminary assessment” is that the pipelines won’t go into service until early 2019. Enbridge had projected that date as sometime in 2017. President Mark Maki said the company also expects costs will be “a little bit higher,” but declined to predict how much. Enbridge had pegged the cost at $2.6 billion. The 616-mile Sandpiper would carry North Dakota crude oil across northern Minnesota to Enbridge’s terminal in Superior, Wisconsin. The 1,097-mile Line 3 carries Canadian crude from Alberta. It was built in the 1960s and is operating at reduced capacity for safety reasons. The fate of its proposed replacement is tied up with Sandpiper because they would share much of the same route across Minnesota. Environmentalists have fought the projects, saying they threaten ecologically sensitive areas. The Minnesota Court of Appeals ruled in August that Sandpiper requires a full environmental review before the state Public Utilities Commission can grant it a certificate of need. The PUC had planned to a somewhat less extensive review later. That forced the PUC to restart the process so the full review can be conducted first. Maki said he expects the permitting process to last into 2017.

Why the federal government agreed to halt offshore oil fracking in California: For years fracking in waters off California was quietly approved without public notice or studies on potential risks to human and environmental health from tons of toxic chemicals used in the intense oil-extraction process. But no more. The first federal study of offshore hydraulic fracturing, or fracking, which uses greater quantities of hazardous chemicals than traditional oil extraction methods, is now underway because of a lawsuit brought by an environmental organization with offices in Los Angeles and Oakland. In its suit filed last year against the U.S. Department of Interior’s Bureau of Ocean Energy Management and Bureau of Safety and Environmental Enforcement, the Center for Biological Diversity argued that the government illegally failed to study the environmental and human health dangers that could arise from fracking. Specifically, the group said the lack of studies violated the Coastal Zone Management Act, the National Environmental Policy Act and the Outer Continental Shelf Lands Act. Government officials initially denied the claims, but then agreed to settle the case on Jan. 29 under the environment organization’s terms. They are now working on a thorough environmental assessment of offshore fracking that is scheduled for completion in May. The assessment includes public comment periods, which will open when once draft and final reports are released.

Energy secretary says California gas leak a symptom of age (AP) — A major gas leak near Los Angeles has brought attention to the nation’s aging energy infrastructure and points to a need for new gas storage regulations, the U.S. energy secretary said Tuesday. Secretary Ernest Moniz visited the site of the Southern California Gas Co. well blowout to learn lessons to help frame a multiagency approach to improving safety at energy facilities nationwide. Moniz provided no details on what might be done from a federal perspective. But he said several themes emerged after meeting with state and local officials about the leak at Aliso Canyon, the largest gas storage facility in the West. “Regrettably, there’s a broader theme than Aliso Canyon,” Moniz said. “We have a lot of very old infrastructure in energy that we have to address for the 21st century.” The well that ruptured was more than 60 years old and was originally drilled to pump oil from deep underground. It was reused in the 1970s to pump natural gas into the empty oil wells for storage and withdraw it when demand spiked. Moniz said infrastructure needs to be improved so it’s smarter and more resilient. He also said regulations need a fresh look, including requirements for stronger monitoring. “These are issues which I want to emphasize have come to light particularly strongly here in Aliso Canyon and obviously are justifiably a huge local concern,” he said. “But they also tell us about a problem we have to study more generally across the country.”

Shockingly, authorities arrest activists instead of people responsible for the Aliso Canyon methane gas leak - Inhabitat - The California State Patrol has arrested two people in connection with the massive methane leak in Southern California’s Aliso Canyon, but many residents who had to leave their homes near the leaking underground gas storage site think the wrong people are in custody. Instead of busting company executives and engineers who are responsible for the massive methane gas leak, the CSP arrested two protesters who draped banners on the headquarters of the California Public Utilities Commission. The protesters draped banners to highlight the lax regulatory environment that enabled the spill — similar to the political culture that enabled the water poisoning in Flint. But unbelievably, the activists are now the ones going to jail.

Alaska governor, partners to look at gas-project options - (AP) — Gov. Bill Walker said Wednesday that the state and its partners on a proposed mega-liquefied natural gas project will look at different options for moving forward amid low oil prices. More details are expected in early March, Walker’s office said. In a letter last month to officials with project partners BP, ConocoPhillips and Exxon Mobil, Walker said he wanted agreements reached on eight areas before the end of the regular legislative session, which is scheduled to conclude in mid-April. The administration had been targeting a spring special session for lawmakers to consider contracts and a constitutional amendment to support long-term tax and royalty terms sought by the companies. But the parties have said talks are difficult. Lawmakers also have heard from the companies about the challenges in the current price environment.“At this point in time, with challenging oil prices, we want to see all of us coming together to look for ways to keep this thing on track,” said Janet Weiss, president of BP Alaska. Alaska needs this project, and it’s an important project in BP’s portfolio, Weiss said. During a news conference with company representatives Wednesday, Walker said the good news is that the parties are motivated to develop and make money off North Slope gas. The project is on track for concluding the current preliminary engineering and design phase this fall, he said. Then, the parties would have to decide whether they want to move to the next stage.

Army Corps to review North Slope oil project by Spanish firm (AP) — A federal agency will conduct an environmental assessment of a Spanish company’s plans to develop what it says could be a significant oil field on Alaska’s North Slope. The U.S. Army Corps of Engineers announced last week that it will prepare an environmental impact statement for Repsol’s Nanushuk project near the village of Nuiqsut. Repsol estimates that the project could yield 120,000 barrels of oil there per day, The Alaska Dispatch News reported. Kuukpik Corp., the village’s Native corporation, owns land in the area and called for the environmental assessment. The corporation’s chief executive, Lanston Chinn, has voiced concerns with the project’s impact on subsistence hunting and the environment. “Subsistence resources and the subsistence lifestyle have to be protected to our liking for oil and gasdevelopment to move forward,” Chinn said. Jan Sieving, Repsol’s vice president of public affairs in North America, said the company supports the Corps’ decision to review the proposal and that it will continue to work with the village and regulatory agencies. “We are committed to environmental and subsistence protections,” Sieving said.

Oil production in federal Gulf of Mexico projected to reach record high in 2017 - Today in Energy - U.S. (EIA): U.S. Gulf of Mexico (GOM) crude oil production is estimated to increase to record high levels in 2017, even as oil prices remain low. EIA projects GOM production will average 1.63 million barrels per day (b/d) in 2016 and 1.79 million b/d in 2017, reaching 1.91 million b/d in December 2017. GOM production is expected to account for 18% and 21% of total forecast U.S. crude oil production in 2016 and 2017, respectively. Production in the GOM is less sensitive than onshore production in the Lower 48 states to short-term price movements. However, decreasing profit margins and reduced expectations for a quick oil price recovery have prompted many GOM operators to pull back on future deepwater exploration spending, reduce their active rig fleet by scrapping and stacking older rigs, and restructure or delay drilling rig contracts. These changes added uncertainty to the timelines of many GOM projects, with those in the early stages of development at greatest risk of delay or cancellation. Contributing to the forecasted production growth are 14 projects: 8 that started in 2015, 4 starting in 2016, and 2 anticipated to start in 2017.  During 2015, eight fields in the Gulf of Mexico came online. With the exception of Anadarko's Lucius field, each of the fields was developed as a subsea well that is tied back to nearby existing production facilities. The use of subsea tiebacks allows producers to reduce both project costs and start-up times. The Lucius field produces oil using a type of floating production platform that supports drilling, production, and storage operations known as a truss spar. The Lucius spar is the largest in Anadarko's fleet. It consists of a large, hollow, weighted cylinder supporting a deck and is connected to an anchor on the seabed through a mooring system. Its design provides increased stability in harsh offshore conditions.

Oil Companies See Profits Fall by $57.4B - - Largely due to significantly lower oil and natural gas prices, Exxon Mobil and Chevron saw their profits drop by nearly $31 billion from 2014 to 2015, while fellow driller Royal Dutch Shell will cut about 10,000 employees from its operations due to a $15.2 billion drop in earnings.  Another one of the world's largest oil companies, ConocoPhillips, saw profits fall by $11.3 billion last year, as the firm actually reported a loss of $4.4 billion for 2015. Collectively, the four firms, known in the industry as "supermajors," watched earnings plummet by $57.4 billion compared to 2014.  According to the New York Mercantile Exchange, the price for a barrel of oil is now less than $32, a significant drop from the $105 range reached in summer 2014. Natural gas prices are also down, as a 1,000 cubic-foot unit is now about $2, compared to about $6 in early 2014. Exxon Mobil maintains significant operations in Bellaire and Shadyside areas via its XTO Energy subsidiary, while Chevron operates wells in Marshall County.  Shell, meanwhile, continues contemplating whether to build a giant ethane cracker near Monaca, Pa. "The scale and diversity of our cash flows, along with our financial strength, provide us with the confidence to invest through the cycle to create long-term shareholder value," Exxon Chairman and CEO Rex W. Tillerson said in emphasizing the firm's continued strength.

More Cuts Loom as Oil Nears $25 - WSJ: As crude prices slide toward $25 a barrel, many oil companies have little choice but to start making the steep cost cuts they have avoided up until now, jettisoning every well that can’t break even or isn’t needed to keep the lights on. “Folks are coming to grips with the reality,” said Dennis Cassidy, managing director at consulting firm Alix Partners, of the 20-month-and counting oil bust that many now fear will wipe out profits in 2016. U.S. and Canadian producers are losing at least $350 million a day at current prices, according to an AlixPartners analysis. Some Canadian companies are now warning they may be forced to shut down older oil-sands sites if prices fall even further. “For the month of January we did not make any money on our oil sands,” said Brian Ferguson, CEO of Canadian producer Cenovus Energy Inc.,Daniel Yergin, vice chairman of energy consulting firm IHS Inc., said sub-$20 oil shouldn’t happen unless crude storage tanks are completely filled, leaving producers no place to stash the fuel they pump. He said many in the market are more bearish than he is. In the U.S., more than 500 million barrels of oil are in storage now, near levels not seen at this time of year since the Great Depression, according to the latest federal data.  Globally, nearly $1.5 trillion worth of oil spending will be canceled between 2015 and 2019, according to IHS estimates, which should eventually mean global oil output will fall.

Low Oil Prices Claim New Victim, an Offshore Drilling Company From Texas -  Yet another oil company has filed for bankruptcy, as the energy industry and its lenders brace for a prolonged slump.  Paragon Offshore, which operates offshore drilling rigs from the Gulf of Mexico to the North Sea, filed for Chapter 11 bankruptcy protection Sunday evening, the latest filing in a painful shakeout buffeting the oil industry.Over the last 16 months, about 60 oil and gas companies have filed for bankruptcy as commodity prices slide, and that figure is expected to double in the coming months if prices remain low. All told, analysts say as much as a third of the sprawling oil and gas industry in the United States could be consolidated as a result of the downturn.Paragon, based in Houston, was one of the more fortunate companies that has contemplated bankruptcy. The company was able to negotiate a deal with its lenders — a mix of bondholders and banks — ahead of its bankruptcy filing. The so-called prepackaged bankruptcy agreement sealed last week allowed Paragon to cut its $2.7 billion of debt by about $1.1 billion and to keep operating. Unlike other recent oil restructurings, which have all but wiped out equity holders, Paragon’s existing equity investors will retain 65 percent of the company.

Devon Energy cutting 1,000 jobs, slashing dividend --: Devon Energy became the latest oil and gas producer to cut everything from its dividend to jobs to spending as it tries to weather the worst price slump in a generation. The shale driller, the leading producer in the Barnett Shale, is reducing its workforce by 20 percent in the first quarter, while slashing its quarterly dividend to 6 cents a share from 24 cents, according to a statement released late Tuesday. It expects 2016 capital spending between $900 million and $1.1 billion, down 75 percent from a year earlier. Cimarex Energy also said it’s cutting investment. “Devon’s top priority in 2016 is to protect the balance sheet,” Chief Executive David Hager said in the statement. “We are tailoring activity to current market conditions and are prepared to adjust capital plans throughout the year to ensure we balance capital investment with cash inflows.“ Devon and peers from ConocoPhillips to Anadarko Petroleum have turned to asset sales and spending cuts to weather the steep drop in crude prices. The Oklahoma City-based company previously said it seeks to raise $2 billion to $3 billion from divestitures. Devon plans to dismiss about 1,000 employees in February, according to a company filing. An additional 600 employees will be affected by asset sales. The company expects to incur about $225 million to $275 million in restructuring costs. The producer reported fourth-quarter earnings exclusive of one-time items of 77 cents a share, compared with the 71-cent average of 31 estimates compiled by Bloomberg. The oil and gas company posted a net loss of $4.53 billion, or $11.12 a share, compared with a loss of $408 million a year earlier.

Devon Energy Announces Sale Of $1 Billion In Stock, Dilutes Existing Shareholders By 13% -- Congratulations to Devon Energy: moments ago it announced that with Goldman as underwriter, it became the first company to successfully access the equity offering window in a long, long time sell equity in the form of 55 million shares in stock, or just over $1 billion in proceeds assuming today's closing price of $20.33.  The proceeds will be used "for general corporate purposes, including bolstering the Company’s liquidity position, reducing indebtedness and funding the Company’s capital program." In other words, Devon is rusing to sell equity while it still can sell equity. Devon Energy Corporation (DVN) ("Devon" or the "Company") announced today that it intends to commence a registered public offering of 55,000,000 shares of its common stock, subject to market conditions. The Company also expects to grant the underwriters an option to purchase up to 8,250,000 additional shares of stock at the underwriters’ election. Net proceeds from the offering are expected to be used for general corporate purposes, including bolstering the Company’s liquidity position, reducing indebtedness and funding the Company’s capital program. Goldman, Sachs & Co. is acting as book-running manager for the offering. And while we congratulate management for confirming that this bounce in oil is to be faded (as otherwise Devon would not be selling shares when its stock price is pennies away from a decade low), we offer our condolences to anyone who bought DVN stock on the recent bounce higher. As of this moment, DVN was down 5% and will likely continue to slide lower, making future equity raises once the just raised $1 billion runs out, that much more dilutive. Finally, if equity investors are so desperate that they will buy equity offerings by E&P companies, that means that the war of attrition between shale and Saudi Arabia will be far longer than most expect.

Chesapeake Energy Corporation (CHK) Liquidity Problems on the Rise, Share Plunges: Chesapeake Energy Corporation  has been facing liquidity problems since last year, as oil and gas markets are in a downtrend. Chesapeake’s stock fell to as low as $1.51 on February 8 amid a news that the company hired a law firm, Kirkland and Ellis, to restructure its $9.8 billion debt. The liquidity problem for the gas producer is posing a real threat to the company’s existence, which has forced the credit rating agencies to cut down on its credit ratings. Standard & Poor (S&P) has reduced its credit rating for the company twice since January to CCC. The rating was cut because the rating firm feels that the company’s debt is “unsustainable.” The report remains bearish over the company’s performance ahead of its fourth quarter of fiscal 2015 (4QFY15) results, which is to be announced on February 24. The bearish stance in the research report comes amid the worries over the company’s solvency as oil crisis is likely to extend into 2017. The investment firm expects cash position for the gas producer to decline 45% to $970 million in FY15. Furthermore, the analyst foresees that “Chesapeake is enroute to chew through $3.9 billion of liquidity, and risks having its credit facility reduced and business impaired from under-investment.” The research report views the second-largest gas producing company to erode its liquidity as its $1.255 billion debt is maturing by 2017 and an additional $439 million litigation risk is expected from the company’s July 2015 ruling.

Anadarko Cuts Dividend 81 Percent to Weather Oil-Price Crash -- Anadarko Petroleum Corp. slashed its dividend by 81 percent, joining a parade of oil and natural gas drillers cutting investor payments as they struggle to preserve cash with prices below $30 a barrel. The cut, the first in the company’s history, reduces payments payable March 23 by 22 cents to 5 cents per share, the company said in a statement Tuesday. The move will save about $450 million a year for Anadarko, the third-biggest U.S. gas producer. Anadarko followed the lead of drillers such as ConocoPhillips and Marathon Oil Corp. in slashing dividends in the wake of a 70 percent crash in crude prices since June 2014. Companies are also cutting back spending on exploration to maintain cash as losses mount and prices are seen remaining lower for longer. With borrowing costs also rising and their share prices diving, companies are looking to save money wherever they can. “More dividend cuts will be coming in the next few weeks,"  . “These companies are trying to hunker down and weather the storm and you do what you have to do in tough times." Anadarko last week said it would cut spending by almost half as The Woodlands, Texas-based company tries to recover from its worst year of earnings since spinning off from Panhandle Eastern Pipe Line in 1986. Anadarko fell 7 percent to $37.24 at the close of trading in New York on Tuesday. The shares have slid 55 percent in the past year. Crude oil futures on the New York Mercantile Exchange sank 5.9 percent to close at $27.94 a barrel.

If Oil Stays At $35, This Is What Energy Company Leverage Will Look Like - With the market enjoying its biggest three-day short-squeeze since 2011, one can be forgiven to forget, if only briefly, that nothing has been fixed. Furthermore, if the OPEC meetings of the past two days have demonstrated anything, it is to confirm that not only is OPEC finished as a cartel, but that OPEC has no power over the marginal oil producers in Texas, aside from bankrupting them by pressuring prices lower. Which is precisely what it will do. And going back to the original point of how nothing has been fixed, here is a chart from DB showing what will happen to the average oil and gas company net debt/EBITDA ratio if oil rises to and remains at $35/bbl.Why is $35 important? Becase as a recent Wood MacKenzie study found, less than 4% of the world's oil supply is actually in the red at that price. Here's Platts: Citing up-to-date analysis of production data and cash costs from over 10,000 oil fields, Wood Mac said it believes 3.4 million b/d, or less than 4% of global oil supply, is unprofitable at oil prices below $35/b. Even the majority of US shale and tight oil, which has been under the spotlight due to higher-than-average production costs, only becomes cash negative at Brent prices "well-below" $30/b, according to the study. This is what is sure to make the Saudis very frustrated:Despite widespread fears of a major supply collapse, the US' shale oil output since late 2014, sharp deflation in service sector costs and greater drilling efficiencies have seen shale oil output remain more resilient to lower prices than first thought.Wood Mac said falling production costs in the US over the last year have resulted in only 190,000 b/d being cash negative at a Brent price of $35/b. The latest study contrasts with a similar report from the research group a year ago when it estimated that up to 1.5 million b/d of output -- focused in the US -- was vulnerable to being shut in at $40/b Brent.

A Third Of Oil And Gas Companies Are At High Risk Of Bankruptcy -- About a third of U.S. oil and gas production and exploration companies are at high risk of going bankrupt in 2016, according to a new report.   The report, published Tuesday by consulting and business services firm Deloitte, looked at more than 500 oil and natural gas exploration and production companies worldwide. It found that 175 of the companies — or nearly 35 percent — were at high risk of going bankrupt, due largely to low oil prices. Together, these companies have more than $150 billion in debt.  “2016 will be the year of hard decisions. We could see [energy and production] bankruptcies surpass Great Recession levels as companies struggle to remain solvent,” John England, vice chairman and U.S. oil and gas sector leader for Deloitte, said in a statement. “Access to capital markets, bankers’ support and derivatives protection, which helped smooth an otherwise rocky road for the industry in 2015, are fast waning.” Oil prices have dropped over the last few years, and are now down to about $29 a barrel for crude oil. The drop in oil prices has caused a slowdown in some oil-producing states. North Dakota, for instance, has been riding a boom in oil production for the past eight or so years — now, new drilling is getting scarcer, and the man camps that popped up to house oil field workers are starting to empty.  According to the New York Times, 60 oil and gas companies have declared bankruptcy over the last 16 months. That number could double if oil prices stay where they are.

A Third of Oil Companies Could Go Bankrupt This Year -- About a third of the world’s publicly-traded oil companies are at high risk of going bankrupt this year, according to a new report out Tuesday.Consulting and audit firm Deloitte put out its findings after closely examining 500 publicly-traded oil and natural gas exploration and production companies worldwide. The threat these companies face is a result of crude prices hovering near 10-year lows, which has already prompted firms to slash their budgets and staff.  The 175 or so companies most at risk have more than $150 billion in debt, according to Reuters’ report on the Deloitte study, and they’re having trouble generating cash given the decreased value of secondary stock offerings and asset sales.  Rumors of impending bankruptcies in the U.S. shale patch have become commonplace in recent weeks. Last week, Chesapeake Energy Corp., one of the U.S.’s biggest shale gas producers, was forced to issue a statement denying it was planning to file for Chapter 11 protection, after its stock fell 50% in a day. Moreover, while many firms were able to cushion the blow of collapsing prices last year by virtue of having sold their output forward, the forward curve in futures markets this year offers no such comfort. Brief hopes that the world’s largest producers, Russia and Saudi Arabia, would cooperate to cut output and end the glut were dashed early Tuesday after a meeting between their respective ministers ended without a binding agreement.

Shale Faces March Madness With $1.2 Billion in Interest Due The U.S. shale industry must come up with $1.2 billion in interest payments by the end of March as $30-a-barrel oil makes it harder for companies to scrape up the cash needed to stay current on their debts. Almost half of the interest is owed by companies with junk-rated credit, according to data compiled by Bloomberg on 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. Energy XXI Ltd. said in a filing Tuesday that it missed an $8.8 million interest payment. The following day, SandRidge Energy Inc. announced that it didn’t make a $21.7 million interest payment. "You’ve seen two of these happen in two days, and I wouldn’t be surprised to see more in the next month as these payments come due," . Energy XXI may not be able to meet its commitments in the next 12 months, raising "substantial doubt regarding the Company’s ability to continue as a going concern," according to a company filing with the U.S. Securities and Exchange Commission. . SandRidge "has sufficient liquidity to make these interest payments, but has elected to use the 30-day grace period in connection with its ongoing discussions with stakeholders," the company said in a statement released Wednesday.   Oil has tumbled about 70 percent since a June 2014 peak of $107 a barrel. While prices were high, many drillers spent more money than they earned, plugging the shortfall with debt.  That debt has become increasingly burdensome as prices collapse. Since the start of 2015, 48 North American oil and gas producers have declared bankruptcy, owing more than $17 billion. Deloitte LLP said this week that bankruptcies in the oil and gas industry could surpass levels seen in the Great Recession. The industry is facing $9.8 billion in interest payments through the end of this year, according to data compiled by Bloomberg.

The Stressed-Out Oil Industry Faces an Existential Crisis - The Saudis may go public, OPEC’s in disarray, the U.S. is suddenly a global exporter, and shale drillers are seeking lifelines from investors as banks abandon them. Welcome to oil’s new world order, full of stresses, strains and fractures. For leaders gathering in Houston next week at the IHS CERAWeek conference -- often dubbed the Davos of the energy industry -- a key question is: what will break first? Will it be the balance sheets of big U.S. shale companies? The treasuries of Venezuela and Nigeria? The resolve of Saudi Arabia, whose recent deal with Russia to freeze output levels offered the first hint of a rethink? After watching prices crash through floor after floor in the worst slump for a generation, the industry is eager for answers. Insiders say it’s not too hard to visualize what markets might look like after the storm -- say five years down the line, when today’s cost-cutting creates a supply vacuum that will push up prices. But it’s what happens in the meantime that’s got them scratching their heads. Seeking clarity at closed-door sessions, cocktail hours and water-coolers in Houston will be some of the industry’s biggest players, from Saudi Petroleum Minister Ali al-Naimi to Royal Dutch Shell Plc Chief Executive Officer Ben Van Beurden. In a less volatile year, the long-term viability of fossil fuels might have been high on their agenda after December’s breakthrough climate deal in Paris. But within the industry, that debate has “fallen into the abyss of $27 oil,” “It seems like it’s never a good time,” she said. “You can’t have these conversations when oil is $125 because then you can’t get it out of the ground quickly enough. And you can’t have it at $27 because you’re just trying to survive.”

Platts launches new US crude assessments to reflect oil exports: On Feb. 8, Platts debuted new assessments to reflect the on-ship export value of US crude oil and condensates along the US Gulf Coast and answer the industry's call for pricing transparency in the wake of the Dec. 18, 2015, action by the US government to lift all restrictions on crude oil exports. The new assessments were created after extensive research and a series of consultations with the industry. Platts' Matt Cook, associate editorial director for crude and residual fuels for the Americas, and Luciano Battistini, managing editor for Americas crude oil, describe the US oil industry's recent changes and elaborate on the suite of new assessments. For more details, view the subscriber note here and read the press release here. For a wider look at the US crude exports, read the oil special report "US crude exports: Rebalancing the global market" here

Initial Production Rates in Tight Oil Formations Continue to Rise --Tight oil production in the United States increased from 2007 through April 2015, based on estimates in EIA's Drilling Productivity Report (DPR), and accounted for more than half of total U.S. oil production in 2015. Tight oil growth has been driven by increasing initial production rates from tight wells in regions analyzed in the DPR. As drilling techniques and technology improve, producers are able to extract more oil during the initial months of production from new wells. Eagle Ford - BakkenNiobrara  Source: U.S. Energy Information Administration, Drilling Productivity Report The average new well in each of these regions produces more oil than previous wells drilled in the same region, a trend that has continued for nine consecutive years. The increasing prevalence of hydraulic fracturing and horizontal drilling, along with improvements in well completions and the ability to drill longer laterals, has greatly improved well productivity. This trend can be seen in the continued increase in initial production rates since 2007, and it has allowed production in major shale basins to be fairly resilient despite high decline rates common to drilling and producing in tight formations and, since 2014, the declining number of rigs drilling for oil. As falling global oil prices led to significant reductions in rig counts and well completions in all DPR regions, remaining rigs are concentrated in high-producing areas. The total number of rigs in DPR regions has fallen from a high of 1,309 rigs in October 2014 to 475 in December 2015, a decrease of 64%, while the production levels in those months have declined by only 8% from their peak in March 2015. Production estimates in DPR regions represent a subset of total U.S. crude oil production. More comprehensive data are available in EIA's Petroleum Supply Monthly.

Tanks Topped, Refiners’ Dumping Crude, 3mth WTI in Super-Contango -- It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut. “Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages. And now with major US refiners dumping crude, as we detailed overnight, those fears are surging. U.S. Energy Information Administration data on Wednesday showed inventories at the Cushing, Oklahoma delivery hub hit a record 64.7 million barrels last week – just 8 million barrels shy of its theoretical limit – stoking concerns that tanks may overflow in coming weeks. And now, given the “super-contango” in 3-month it is extremely clear that storage concerns are at their highest in 5 years… Simply put, as one trader noted, speculators are now “making the leap to Cushing storage never being more full… will actually overfill, or even stop taking crude oil deliveries outright.”

Shale boom leads US to first annual trade surplus with OPEC  -- In 2015, the United States recorded an annual trade surplus with the Organization of the Petroleum Exporting Countries. For the first time ever in trading with OPEC, exports exceeded imports. The United States finished $6.6 billion in the black, according to the U.S. Bureau of Economic Analysis data. More than $72 billion worth of goods were exported to OPEC countries, while $66.15 billion worth of goods were imported. The United States posted a positive trading balance in all but three months of the year. Reversing decades of trading, the surplus can be attributed to the rise of hydraulic fracturing in the United States. Since 1985, the U.S. depended on oil from OPEC, creating large trade deficits. But that trend began to change in 2011 during the shale boom. U.S. crude production trimmed away at quarterly deficits in 2014 until a surplus was reached in the first quarter of 2015.  During that time, U.S. oil production skyrocketed, increasing by about one million barrels per day. By 2014, energy companies produced more than 8.7 million barrels of oil per day. Multiple factors contributed to the trade surplus with OPEC. Falling crude prices paired with lower imported oil volumes helped to decrease the trade deficit.

BP’s Rosy Long-Term View Of U.S. Fracking And Tight Gas/Oil | Following on from our post Monday reporting on BP’s forward-looking Global Energy Outlook report we thought, with the current turmoil in the fracking industry bought on by OPEC induced low prices, it would be interesting to look at what the oil major has to say about the prospects for that business model. It may be that BP, still largely an oil and gas major, is looking at energy use through their own rose-tinted lens subscription. Many are heralding recent efficiency improvements in solar cells and the drop in prices as the start of a new golden age in solar power generation that, in a world so focused on rising carbon emissions, will sweep away older, more-polluting forms of power generation. BP doesn’t see it like that, and that does not mean to say they are wrong, but it does challenge us to ask if the current enthusiasm for a carbon-free world is misplaced.   History and the current sources of energy suggest that even by 2035 80% of our energy will continue to come from fossil fuels, that may be not what we want to see but it is what the data is telling us BP’s chief economist said in the presentation. He went on to say disruptive as renewables will eventually become over the next twenty years, it is highly unlikely the integrated technologies will develop far enough or the costs come down sufficiently for a dramatically greater penetration of power generation than BP is already predicting.  Just as surprising is the extent to which the oil major sees the transformational change that fracking will continue to be to the energy markets. Rather than consign tight oil and shale gas to the past, as Saudi Arabia had hoped would be the result of its purposeful depressing of the oil price, BP sees any demise as a temporary phenomena followed by continued growth in a couple of years.

Will Shale 2.0 Lower Oil Prices to $20 Per Barrel? - A paper called "Shale 2.0: Technology and the Coming Big-Data Revolution in America's Shale Oil Fields" was released in May by Mark P. Mills, senior fellow for the Manhattan Institute and faculty fellow at Northwestern's McCormick School of Engineering and Applied Sciences. The Manhattan Institute has a political ideology and the paper argues for certain government policies to be put in place. It is not the intent of this post to discuss policy recommendations, but instead to review the author's discussion on how emerging trends in the oil industry could lead prices lower. The author makes the claim "Shale 2.0 promises to ultimately yield break-even costs of $5-$20 per barrel-in the same range as Saudi Arabia's vaunted low-cost fields." Mills believes that one cannot discount the possibility that oil prices will stay below $60 per barrel for decades. He points out that in the last 150 years, there have only been three periods where oil has risen above inflation adjusted prices of $50 per barrel. View gallery .View gallery .Mill's main thesis is that technological innovation continues to improve in all aspects including logistics, planning, seismic imaging, well-spacing, fluid and sand handling, chemistry, drilling speed, pumping efficiency, instrumentation, sensors and high-power lasers.

Hydraulic Fracturing Market Worth $90.55 Billion By 2020: Grand View Research, Inc - The global hydraulic fracturing market is expected to reach USD 90.55 billion by 2020, according to a new report by Grand View Research, Inc. Hydraulic fracturing enables easier crude oil and natural gas extraction from unconventional reserves such as coal bed methane, shale formations, and tight sand. Government support in the form of financial incentives and tax benefits particularly in Asia and North America is anticipated to drive the market over the forecast period. Shifting focus towards developing unconventional hydrocarbon resources owing to depleting production rates in conventional oil & gas reserves is expected to positively impact industry growth. Growing concern for ground water contamination has led regulatory bodies to ban hydraulic fracturing particularly in European countries including France and Tunisia. This is anticipated to remain a key challenge for industry participants over next six years. Plug & perf was the leading technology segment and accounted for over 80% of total revenue in 2013. This technique is widely used in shale oil and shale gas completions and assists multistage fracturing for cased holes.

The future of oil production in the Gulf of Mexico - Crude oil production in the Gulf of Mexico (GOM) has been riding high in recent months, still surfing the wave of deepwater and ultra-deepwater projects whose development started in the “good ole days” of $100/Bbl oil. Some incremental output is still being added, keeping GOM production levels high even as onshore oil output is declining in response to low crude prices and drilling cutbacks. But exploration and production companies (E&Ps) are cutting their spending on offshore projects, and unless oil prices start to rebound soon the Gulf too will see a leveling off—and after that, a gradual fall--in production. Today, we conclude our series on resilient production levels in the GOM with a look at recent cutbacks and what they may mean for Gulf oil output in 2016 and beyond.  U.S. oil production as a whole has been declining the past few months in response to plummeting prices, but that overall decline in output has come despite gradually rising production in the GOM. As we said in Episode 1, that’s because the incremental gains in output the Gulf has seen over the past few months are the result of investment decisions that E&Ps active in the GOM made a few years ago, We also pointed out that while it may take much longer (and cost much more) to develop new production areas in the deepwater and ultra-deepwater Gulf than in tight oil plays on land, the output of the best GOM wells typically remains relatively high for several years, not just for a couple of years as is the case with shale wells on terra firma. In other words, if all drilling in the Gulf were to stop today, the GOM would still be producing a lot of oil five or even ten years from now; the same couldn’t be said, of course, if all shale drilling were to stop on a dime in the Permian Basin or the Bakken, with their wells’ high initial production rates and rapid production fall-offs.

Higher Costs and Lower Prices Beat Down Canadian Crude Producers - If you think that yesterday’s 13 year-low CME/NYMEX crude settlement price ($26.21/Bbl – February 11, 2016) is bad news for struggling U.S. producers then try putting yourself in Canadian producer’s shoes! The headwinds facing Western Canada’s heavy oil sands these days would try the patience of a saint. Prices for benchmark Western Canadian Select (WCS) blend in Alberta traded as low as $12.50/Bbl in January 2016 – clawing back to $14.06/Bbl on February 10, 2016. But by the time gathering, transport and diluent purchase costs are subtracted, the netback (market price less transport cost) at the lease is negative for many producers – especially when shipping by rail.  To be clear, that’s below zero at the wellhead!  Yet there are few signs that production is falling off – at least in the short term. Today we lament the ongoing plight of Canadian producers.   Most production from our northern neighbors comes not from shale but from heavy oil sands in Western Canada – where output has been increasing steadily for decades. The heavy bitumen produced in this region is extracted using various technologies with some mined at the surface (mostly upgraded in the region to produce light synthetic crudes) and most of the rest extracted underground or in-situ using steam assisted gravity drainage (SAGD). Much of the recent expansion has involved SAGD – that requires high upfront expenditure in plants that produce steam used to heat and extract bitumen underground. These plants produce crude for decades once they are up and running. The bitumen produced is very heavy, which means high viscosity.   Consequently, it only flows when heated mixed with another hydrocarbon that reduces the viscosity. Practically speaking this means that it must be mixed with a lighter diluent hydrocarbon such as condensate or natural gasoline to make blended crudes - known as dilbit - in order to flow to downstream markets in pipelines.

Canadian Heavy Crude Oil Producers Can’t Make It Up on Volume -- Most Canadian oil sands crude production comes from very expensive mining or underground steam heating operations designed to produce consistently for decades that are costly to shutter in a downturn. Right now the crude netbacks (market price les transport costs) for these projects are more or less under water depending on transport routes. Yet production continues and new projects are still coming online. Today we estimate the netbacks (market price less transport cost) that Canadian producers are realizing.  In Episode 1 of this series we reviewed the woes of hard-pressed Canadian producers in the face of ever lower crude prices.Crude prices in the Western Canadian oil sands for benchmark Western Canadian Select (WCS) are currently (11 February 2016) trading at a $12/Bbl discount to WTI in Hardisty, Alberta – reflecting the higher transport cost to get Canadian crude to U.S. refineries and quality differentials for heavier oil sands grades.  That means Canadian producers get $15/Bbl at best ($14.20/Bbl on February 11, 2016) for their crude in Alberta. And some of that $15/Bbl has already been spent to buy the lighter and more expensive hydrocarbon diluent that is required to blend heavy oil sands bitumen at the lease so that it can flow in pipelines.  Since most of the demand for heavy oil sands crude comes from U.S. refiners – in the Midwest or increasingly on the Gulf Coast – producers have to eat high transportation costs to get their crude to market. We also discussed how oil sands extraction plants that use steam assisted gravity drainage (SAGD – used by the majority of recent projects) are difficult to shut down when economics are this bad – because the start up process is very lengthy and expensive and the process of stopping production can damage the resource reservoir.  In the circumstances cash struck producers are selling midstream assets and hunkering down even as – in some cases – they are experiencing a net cash outflow on every barrel produced. In today’s episode we take a look at the economics for a typical oil sands producer to understand just how bad things are in the Canadian oil patch these days.

Get your fracking facts or face the consequences - If you needed a cause for celebration, a slice of cake and a glass of bubbly, tomorrow marks one year since Wales’ moratorium on fracking for shale gas. Carl Sargeant announced a moratorium on fracking 12 months ago The date comes just as another local council, Swansea , voted to become a frack-free zone. The moratorium, which came into force on February 16, 2015, means fracking cannot be carried out in Wales without permission from natural resources minister Carl Sargeant . Companies believe fracking could bring a huge windfall to Wales, saying we sit on top of six times the UK’s annual gas consumption. But as the Welsh Government has made clear its opposition to fracking, Mr Sargeant is unlikely to be moved.   Things are not the same across the border. As fracking is opposed in Wales, there are plans to fast-track controversial schemes in England. England fast tracking fracking While the process could give the UK the chance to reduce reliance on foreign imports of fuel, especially with North Sea oil supplies in decline, why anyone would rush through a system that is still not properly understood should be a concern for all of us.

Oil Thefts Surge In Mexico As Cartels Become Specialized - Already reeling from low prices, officials with Mexico’s state-run Pemex are also fighting an ever intensifying battle against pipeline theft as organized crime tries to gain a foothold in the country’s newly reformed energy sector. From loosely organized groups of locals to feared drug cartels, those who believe there is a significant amount of illicit profit to be made here are coming out of the woodwork—and for starters they are eyeing pipelines. The statistics tell an alarming story of a rapidly increasing number of pipeline thefts year over year. According to a report from Pemex released in November of 2015, incidents of illegal pipeline tapping rose a staggering 43.7 percent in 2014 over the previous year. This amounts to over 4,100 recorded pipeline taps and over 7 million liters of stolen gasoline. Pemex estimates the cost of the thefts to be $1.29 billion. But lost revenue is just part of the story. Fuel theft is incredibly dangerous, and there are increasing reports of injuries and death. Earlier this month, criminals illegally tapped a pipeline, causing an explosion. They were lucky to escape without injury but the pipeline had to be shut down while officials investigated the theft and repaired the damage.

Peruvian Oil Spill Prompts Water Emergency For Thousands - Thousands of residents in the northern Peruvian jungle are facing a water quality emergency following two pipeline ruptures that spilled crude oil into various waterways — including a tributary of the Amazon River — damaging a vast area known for its ecological value.  Peru’s General Directorate of Environmental Health issued the water quality emergency Wednesday, more than three weeks after the first rupture was reported on January 25. The second spill, which came from a different section of the same pipeline, took place on February 3, further extending plumes of oil and affecting the livelihood of communities that rely on fishing and agriculture.“Fish have died, crocodiles have died, plants have died,” said one female resident to a Peruvian television station. “How are we going to live,” added the resident, who was not identified in the footage.  At least 2,000 barrels of oil were spilled in the regions of Amazonas and Loreto, though 90 percent of the spillage has been recovered, Peruvian President Ollanta Humala said this week, according to published reports.

Sanctions failed to take a bite out of Russia’s oil patch -  International sanctions against Russia introduced in 2014 turned out not to be the bogeyman they first seemed to be, and could in fact have played a key role in helping the Russian oil sector to not only handle the sharp price drop over the last year and a half, but make the industry more efficient in the long run. When sanctions were implemented targeting the Russian oil sector’s access to Western financing and key Arctic, shale and deepwater technology, analysts saw them as major blow. Forecasters speculated that Russian oil companies would run into problems trying to maintain drill rates, service loans in foreign currencies, and could struggle to maintain output. At the time the International Energy Agency estimated Russia’s crude production would fall by 80,000 b/d in 2015. And these forecasts came when oil was still trading at over $100/b. Things haven’t quite panned out as predicted — Russia increased crude output in 2015 by 147,222 b/d year on year, to 10.73 million b/d, and energy ministry data for January indicates this trend is continuing into 2016. This is mainly due to a significant increase in drilling, and a drive to concentrate resources on maximizing efficiency at existing projects, rather than invest in new ones that are unlikely to immediately boost output.

Cyprus to go ahead with 3rd gas exploration licensing round (AP) — Cyprus’ government says it will push ahead with a third licensing round to search for potential natural gas deposits off the Mediterranean island nation’s southern shores. Government spokesman Nicos Christodoulides said earlier this week the process will begin as soon as possible, but offered no further details. U.S. company Noble Energy, which received an exploration license in 2007, discovered a field around 100 miles (160 kilometers) south of Cyprus that’s estimated to contain more than four trillion cubic feet ofgas. France’s Total and Italy’s Eni along with its South Korean partner KOGAS have extended by two years exploration licenses they received during a second round in 2012. Eni last year discovered in waters off Egypt what it called the largest gas deposit ever found in the Mediterranean Sea.

Israeli leader defends gas extraction deal in Supreme Court  — Israeli Prime Minister Benjamin Netanyahu made an unprecedented appearance at the Supreme Court Sunday to defend a deal signed in December with U.S. and Israeli developers drilling offshore gas deposits. Israel’s Channel 10 TV reported Netanyahu as telling the court that if Israel were to alter its deal investors could turn away and buy gas from Israel’s enemies instead. Netanyahu said he chose to speak in court because of the strategic importance of the gas deal, which he says will allow Israel to develop ties with Jordan, Egypt and Turkey and significantly boost its economy. Resource-poor Israel announced the discovery of sizeable offshore natural gas deposits about five years ago. A partnership between Noble Energy and Delek Group, which is led by billionaire Yitzhak Tshuva, is the main developer at Israel’s two larger gas fields, Tamar and the heftier Leviathan. After the country’s antitrust commissioner determined the gas companies’ ownership constituted a monopoly, a government committee reached a deal with the firms to introduce competition. Opponents later challenged the deal in court because they said it favored the developers over the Israeli public. Opposition lawmaker Shelly Yachimovich, a leading opponent of the deal, tweeted that Netanyahu’s speech was full of “exaggerations, clichés and general statements without one fact behind them.”

BP Expands Scope of $16 Billion Natural Gas Project in Oman - BP Plc and state-owned Oman Oil Co. agreed to expand an exploration and production sharing agreement of the Khazzan natural gas field to include a second development phase, at an estimated cost of $16 billion for the entire project. Block 61 will add 1,000 square kilometers (386.1 square miles) to the original 2,700 square kilometer area of development, BP said Sunday in an e-mailed statement. The project will produce 1.5 billion cubic feet of gas per day, or 40 percent of Oman’s current output. The new development requires final approval of Oman’s government and BP, which is expected in 2017, the company said. The reservoir is known to have “tight gas,” which is trapped in impermeable rocks and requires techniques including hydraulic fracturing to extract. Oman, an exporter of liquefied natural gas to Spain, Japan and South Korea, is studying options to import LNG to help generate power. Domestic consumption jumped to 774 billion cubic feet in 2013 from 520 billion cubic feet in 2009, according to the U.S. Energy Information Administration. Oman imports gas via a pipeline from Qatar and is in talks to build a link with Iran across the Persian Gulf. “Khazzan is a major resource with the potential to produce gas for Oman for decades," BP Chief Executive Officer Bob Dudley said in the statement. The first phase of the project is expected to deliver gas in 2017 and the second will start in 2020. BP owns 60 percent of the block, with the remaining 40 percent held by Oman Oil. More than 325 wells are planned over 15 years.

Oil Price Fears Weigh on European Banks - WSJ: Among recent concerns hitting European bank stocks is one that has been responsible for wider market mayhem for months: oil. Global bank shares tumbled through much of last week as investors worried about world-wide economic growth, capital buffers and the effects of low and negative interest rates. But in Europe, another worry caught up with the banks as the price of oil plummeted. Fears of energy-sector bankruptcies have long weighed on the U.S. banking sector, which financed the decade long expansion of the shale industry. More recently, investors have asked about exposure in Europe, where it is less well documented. Oil is causing other concerns for banks. The slide in crude prices has hit some of the emerging markets that many banks are exposed to. Meanwhile, cheap oil is feeding into low inflation, prolonging the era of low interest rates that is squeezing banks’ profits. Crude’s hit on banks shows how oil’s fall continues to spread through markets, becoming a leading influence on equity prices. The correlation between oil prices and European banking shares is at its highest since 2012, according to data from UBS.

Main Factors That Are Dragging Global Oil Prices Down: Over the last two years, global oil prices have dropped by nearly two-thirds. Here is a list of the main factors which have transformed the global energy market. In February 2014, price of oil was around $110 a barrel on global commodity exchanges. Today, the Brent benchmark crude extracted from the North Sea is hovering at $30 per barrel. The era of higher priced oil which began in 2011 now seems to be nearing its end. Furthermore, taken in a historic perspective, the recent years are not typical: $20 a barrel was normal in the 1980-90s. In 1999, there were times when the oil price hardly reached $10. Could current events in the oil market be a signal of a similar tendency? While economists and analysts have kept from predicting the future oil prices it is possible to outline the factors which have contributed the most to changing the global oil market.

What's at Stake in an Economy with Low Oil Prices - Harvard Business Review -  In the past, low oil prices have been seen as a boon, particularly at the gas pump. They’ve been credited with boosting economies and stirring growth. But recently oil prices have dropped so low that warning bells rippled through global markets, and they remain volatile. What does all this mean for countries and companies? How big is the risk? For answers, I talked to Ian Bremmer, president of Eurasia Group and author of Superpower: Three Choices for America’s Role in the World. An edited version of our conversation is below.

Oil Advances for a Second Day After Bullish Bets Increase -  Oil advanced a second day, rising briefly above $30 a barrel in New York for the first time in almost a week. West Texas Intermediate futures rose 1.1 percent in electronic trading in New York after surging 12 percent on Friday. Speculators’ long positions in WTI through Feb. 9 rose to the highest since June, according to data from the U.S. Commodity Futures Trading Commission. Iran loaded its first cargo to Europe since international sanctions ended, while Chinese crude imports eased from a record. Oil in New York is down about 20 percent this year. While the outlook for increased Iranian exports threatens to further boost record oil stockpiles, major companies including Chevron Corp. and Anadarko Petroleum Corp. are curbing spending on exploration and development of new resources. Crude surged the most in seven years on Feb. 12 after the United Arab Emirates repeated OPEC’s readiness to engage with other producers. “The oversupply will decrease sharply over the course of the year,” “Developments in supply and demand mean the market will very closely avoid hitting tank-top levels.” WTI for March delivery gained as much as 71 cents to $30.15 a barrel on the New York Mercantile Exchange and was at $29.76 as electronic trading ended at 1 p.m. The New York Mercantile Exchange floor was closed Monday for the Presidents Day holiday, and trades will be booked Tuesday. The contract gained $3.23, or 12  percent, to close at $29.44 on Friday after dropping 19 percent the previous six sessions. WTI prices lost 4.7 percent last week.

Why Tomorrow's "Secret" Meeting Between Russian, Saudi Oil Ministers Will Not Lead To A Cut In Production -- For the past two weeks recurring flashing red headlines of an agreement, or at least a meeting, between Russia and Saudi Arabia - the world's two largest oil producers - have led to aggressive short-covering rallies in oil on just as recurring hopes that the Saudi strategy of flooding the market with excess supply (by its own calculations as much as 3 million barrels daily) adopted during the 2014 Thanksgiving Day OPEC meeting, will come to an end. Tomorrow this endless "headline hockey" will come to an end, following what is now a confirmed "secret" meeting between the two oil superpowers when, as Bloomberg reports, Saudi Arabia’s oil minister will meet with his Russian counterpart in Doha on Tuesday "to discuss the oil market." According to Bloomberg, Ali al-Naimi, the most senior oil official of the world’s biggest crude exporter, will speak with Russia’s Alexander Novak in the Qatari capital, "according to the person, who asked not to be identified because the talks are private." The person didn’t say what the agenda of the meeting will be, which will also be attended by the kingdom’s fellow OPEC member Venezuela. The energy ministries of Russia and Saudi Arabia declined to comment. Going into the meeting, one thing is certain: over the past 15 months Saudi Arabia has never once indicated any interest in curtailing production: after all, that would go against its unstated directive of putting marginal oil producers, read US shale companies, out of business:

Russia and 3 OPEC Members Agree to Freeze Oil Output -  — As prices have dropped ever lower, smaller oil producing nations on precarious financial ground have regularly pushed their bigger brethren to stop pumping at record levels and help calm the markets.Now, even the giants are joining the chorus, with Saudi Arabia and Russia on Tuesday calling for a coordinated effort to freeze production.The plan, which also included Venezuela and Qatar, is a tentative sign that major oil producers are ready to cooperate. And it indicates how deeply prices have fallen, as Russia and Saudi Arabia have previously resisted tempering production.But whether the plan actually goes anywhere — or is just chatter meant to bolster prices — is an open debate. The four countries said they would proceed only if others commit.It is not an easy sell. Iraq has a longstanding policy of seeking to raise production regardless of the price-stabilizing policies of the Organization of the Petroleum Exporting Countries, to which it belongs. And Iran has staked out a policy of increasing oil exports now that sanctions have been lifted as part of its nuclear deal.

Saudi Arabia and Russia ministers agree oil production freeze -- Saudi Arabia has agreed with Russia to freeze oil output if they are joined by other large producers, in the first co-ordinated move to try to reduce a near record supply glut and halt the collapse in prices. After watching oil prices fall 70 per cent since mid-2014, Saudi Arabia’s powerful oil minister Ali al-Naimi said an output freeze by some of the world’s major producers should start to stabilise the market. The speed of the deal between the Opec powerbroker and the world’s largest crude oil producer surprised the market but traders remained sceptical the provisional agreement would gain wider acceptance. Opec member Iran is seen as the biggest stumbling block. The deal was reached at a closed-door meeting in Doha with Opec members Qatar and Venezuela. Mohammad bin Saleh al-Sada, Qatar’s energy minister, said the deal was still contingent on other major producers agreeing to join the freeze, which will probably complicate efforts. In a bid to bring the most reluctant Opec members on board, Venezuela oil minister Eulogio del Pino, who has led the diplomatic push for a deal, will travel to Tehran on Wednesday to meet officials from Iran and Iraq. Bijan Zanganeh, Iran’s oil minister, said the country would not give up its share of the market, according Iranian news agency Shana. The country has only just started raising exports following lifting of sanctions last month. The oil price initially jumped 6 per cent on Tuesday morning after the plans for the Doha meeting leaked overnight. But the market pulled back as traders expressed doubts about a wider agreement being reached. Mr Naimi said after the meeting: “Freezing now at the January level is adequate for the market, we believe . . . We recognise today the supply is going down because of current prices. We also recognise that demand is on the rise.”

Saudi Arabia, Russia to Freeze Oil Output Near Record Levels - Saudi Arabia and Russia agreed to freeze oil output at near-record levels, the first coordinated move by the world’s two largest producers to counter a slump that has pummeled economies, markets and companies. While the deal is preliminary and doesn’t include Iran, it’s the first significant cooperation between OPEC and non-OPEC producers in 15 years and Saudi Arabia said it’s open to further action. Oil pared gains after the accord was announced, signaling traders see no immediate end to the global supply glut. The deal to fix production at January levels, which includes Qatar and Venezuela, is the “beginning of a process” that could require “other steps to stabilize and improve the market,” Saudi Oil Minister Ali Al-Naimi said in Doha Tuesday after the talks with Russian Energy Minster Alexander Novak. Qatar and Venezuela also agreed to participate, he said. Saudi Arabia has resisted making any cuts in output to boost prices from a 12-year low, arguing that it would simply be losing market share unless its rivals also agreed to reduce supplies. Naimi’s comments may continue to feed speculation that the world’s biggest oil producers will take action to revive prices. “The reason we agreed to a potential freeze of production is simply the beginning of a process” over next few months,” Naimi told reporters. “We don’t want significant gyrations in prices. We don’t want a reduction in supply. We want to meet demand. We want a stable oil price.”

OilPrice Intelligence Report: Oil Markets Disappointed By Production Freeze - It is yet another week in which rumors of an OPEC cut swirled around the oil markets. The difference this time, however, is that the rumors are backed up by a bit more substance. OPEC confirmed on Monday that the energy ministers from Saudi Arabia, Russia, Qatar, and Venezuela met in Doha, news that sent oil prices up. On Tuesday, the group emerged with a deal: a freeze on January production levels, but not an outright cut. The deal would also be contingent on all OPEC members agreeing to the plan.  Despite the news, the deal falls short of what the oil markets had been hoping for. Moreover, it is also unclear whether or not all parties will sign on. On the one hand, a production freeze is unambitious – it merely freezes output at near record levels for most countries. Worse, even a weak deal faces hurdles to implementation. The biggest outstanding question is whether or not Iran would agree to limiting its production just as it finally shook off years of sanctions. Iran had previously announced plans to increase production by 500,000 to 1 million barrels per day (mb/d). It is hardly in its interest to cap production now.  Even if Iran adheres to the deal, the production freeze may not ease the glut. Judging by the reaction in the markets – oil prices staged a brief rally but the gains were quickly erased as reality set in – oil traders are disappointed with the outcome. Meanwhile, on Monday, Iran began shipping oil to Europe for the first time in years. Europe was a significant market for Iran before the harsher 2012 sanctions cut off the trade. Iran is looking to claw back some of its old market share that it lost in the intervening years to Saudi Arabia and Russia. Also, the WSJ reports that the CEO of GE Oil & Gas visited Iran recently, which appears to be the first executive from an American energy company to do so. There are still some remaining sanctions from the U.S. government on Iran, which has kept most American companies at bay.. Paragon Offshore, an oilfield services company, became the latest to declare bankruptcy. Last Friday the firm said that it would restructure $2.7 billion of debt. Service companies have been among the hardest hit during the downturn as upstream companies scrapped nearly all of their drilling operations. Paragon had a fleet of 40 rigs, but with a shrinking number of explorers willing to contract them out, the company’s revenues plunged.

Oil loses nearly 4 percent as hopes over Saudi, Russia deal fade - Reuters: Brent oil fell almost 4 percent on Tuesday, erasing early gains after top producers Russia and Saudi Arabia dashed expectations of an outright supply cut by agreeing only to freeze output if other big exporters joined them. Benchmark Brent prices jumped briefly through $35 a barrel after Russia and Saudi Arabia agreed to keep output at January levels, in what could be the first joint OPEC and non-OPEC deal in 15 years. Qatari energy minister Mohammad bin Saleh al-Sada said the step would help to stabilise the oil market, which has experienced price declines not seen since the early 2000s because of a supply glut. Elsewhere, inventories at the Cushing, Oklahoma delivery point for U.S. crude futures rose by nearly 705,000 barrels during the week to Feb. 12, traders said, citing data issued by market intelligence firm Genscape. Brent settled down $1.21 at $32.18 a barrel, after rising earlier to $35.55. U.S. crude settled down 40 cents at $29.04, off the day's high of $31.53. Tuesday's early rally ran out of steam as investors weighed the chances of an output freeze while Iran remained absent from the talks and determined to raise production. Sources familiar with Iranian thinking on supply said Tehran would be willing to consider a freeze once its production had reached pre-sanctions levels.

Historic OPEC-Russia Agreement Will Have Minimal Impact -- Several top OPEC producers made headlines with Russia on Tuesday, revealing that a secret meeting between their respective energy ministers led to a deal to “freeze” production in an effort to boost oil prices. The agreement is monumental in the sense that OPEC and Russia are poised to agree to cooperate, the first OPEC and non-OPEC deal in 15 years. At the same time, the deal is a half-measure and will likely be inadequate to substantially rescue oil prices from their rock bottom lows. Leaving aside the incentives for each individual country to cheat on the commitment, the proposal still faces hurdles. First, Iraq is a bit of a question mark, given its need to increase production. But Iraq produced at a record level in January and boosting production beyond current levels appears to be difficult. Therefore, agreeing to a freeze does not have too much of a downside. Reuters reported that a source from the Iraqi oil ministry said that they were ready to participate if all others did as well. "Iraq is with any decision that contributes to propping up oil prices," the source told Reuters. Russia is probably the most pleased with the emerging deal. Russia is producing at historic highs and didn’t anticipate any more production gains this year. As such, freezing production may not be too much of a sacrifice at all. And of course countries like Venezuela and Qatar would sign on – they have little chance of ramping up production from current levels. Venezuela, in particular, is not only suffering through an economic crisis, but has seen its oil production steadily erode over the past decade. But for others, there is some sacrifice involved. Saudi Arabia’s January production levels of 10.2 million barrels per day (mb/d) were actually a bit down from their high point in 2015 at 10.5 mb/d. Also, Saudi Arabia usually increases production in the summer months to meet higher domestic demand, so freezing output would cause Saudi Arabia to take a hit.

What Saudi Arabia’s Freeze Means for Oil Prices - The more things change in the oil market, the more they stay the same: The agreement Tuesday between Saudi Arabia, Russia, Qatar and Venezuela to freeze oil output falls somewhere between symbolic significance and no change at all. So it shouldn’t be a surprise that Brent crude, which had rallied to north of $35 a barrel as reports of a meeting in Doha surfaced, quickly gave up its gains Tuesday.  The shock-and-awe value of any agreement, after nearly a year and a half where Saudi Arabia had quashed any suggestions of coordinated action to support oil prices, was blunted by several factors. First, a market hungry for cuts got only a freeze at January’s production levels. Second, this freeze is coming at a particularly high-water mark. Russia is producing at a post-Soviet era high and, given natural decline at some fields, output was expected to be about flat this year. Others are already squeezing what they can out of their oil infrastructure: Qatar is producing at capacity, according to the International Energy Agency, and Venezuela is close. Saudi Arabia has spare capacity but likes to keep it that way: its flex is its source of market power. Third, the agreement to keep a lid on production is contingent on other big producers playing ball. Iran, in particular, seems highly unlikely to agree to curtail the ramp up of its output following the lifting of sanctions.  The country is exporting about 1.3 million barrels a day, intends to increase that to north of 1.5 million barrels a day in about the next month and to pre-sanctions levels of about 2 million barrels later this year. Saudi Arabia’s sudden strategic rapprochement with other oil producers certainly puts its regional arch-rival in an awkward position.

Why OPEC deal may not increase oil prices - Gleaning insight into the direction of the Organization of the Petroleum Exporting Countries is a favored parlor game of the oil markets, as evidenced by three separate incidents recently in which oil prices spiked on hopes of a production cut. But faith in OPEC’s ability to prop up oil prices may prove fleeting, as the global energy markets weigh the possibility of an OPEC production deal against the onset of new output by Iran and cash-poor U.S. producers that can’t afford to stop pumping. After reports surfaced Tuesday that Russia, Saudi Arabia, Qatar and Venezuela are poised to freeze oil output at January levels, oil briefly surged before settling down and even dipping into negative territory as reality set in. Stocks also got a lift from the reports with the Dow Jones Industrial rising more than 200 points. The prospect of a freeze didn't light a fuse under the market for crude. Prices are low for a reason: the worldwide surplus of production, a tepid global economy and the inability or unwillingness of producers to agree to cuts. With Iran planning to return oil production to pre-sanctions levels and Saudi Arabia refusing to cut production, crude oil is unlikely to move higher than the $40 to $50 range in 2016, analysts say. The U.S. benchmark crude, West Texas Intermediate, fell 1.4% to $29.04, while Brent crude, the international standard, slipped 3.6% to $32.18.

Saudis, Russians Fail To Cut Oil Production, Agree To Freeze Record January Production; Iran Already Renegs -- Last night when previewing today's main event, the "secret" meeting between the Saudi and Russian oil ministers, we explicitly said this deal would not "lead to a cut in production", and sure enough just two hours ago the meeting between the two oil superpowers concluded and as expected the two failed to agree to any production cut; instead what they did agree on was to "freeze" production at January's already record levels, and furthermore make the agreement contingent on other OPEC members complying, something Iran has already said it would not agree to.  Here is Reuters' take: Top oil exporters Russia and Saudi Arabia agreed on Tuesday to freeze output levels but said the deal was contingent on other producers joining in - a major sticking point with Iran absent from the talks and determined to raise production. The Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha - their highest-level discussion in months on joint action to tackle a growing oversupply of crude and help prices recover from their lowest levels in more than a decade.  The Saudi minister, Ali al-Naimi, said freezing production at January levels - near record highs - was an adequate measure and he hoped other producers would adopt the plan. Venezuela's Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday in Tehran. "The reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilize and improve the market," Naimi told reporters. "We don't want significant gyrations in prices, we don't want reduction in supply, we want to meet demand, we want a stable oil price. We have to take a step at a time," he said. It was not exactly clear how "freezing" output at a record level will "stabilize and improve" the market but we will cross that bridge in a few months.

Oil Price Volatility Soars Near Record Highs -- Oil prices (and the broader financial markets) have suffered from acute bouts of volatility so far in 2016, with dramatic intraday swings the most worrying feature, and as's Charles Kennedy warns, this shows no signs of letting up. With realized volatility soaring... The CBOE Crude Oil Volatility Index, that tracks (as it name suggests) the implied volatility of crude oil, has spiked to a level not seen since the global financial meltdown in March 2009. While energy analysts have closely watched the crash of oil prices since mid-2014, only in the past two months – largely since OPEC’s December meeting – has crude oil volatility surged to its highest level in seven years. Oil prices are at their lowest levels in more than a decade, but the daily up and down moves are leaving investors with whip lash. After crashing last week following bearish comments from the Federal Reserve, oil prices surged by more than 12 percent on Friday, the largest percentage gain in seven years, on more credible news that OPEC might be coming around to the idea of coordinated production cuts. What’s more, even after the 12.3 percent gain, crude oil still ended the week lower than it was on Monday. Part of it is due to computerized trading that leads to feedback loops of buying and selling as large volumes of capital get moved around. But computerized trading is not a new phenomenon. What is new is the instability in the financial markets. After nearly a decade of near zero interest rates from the U.S. Fed, the global economy still looks rather unsteady. There is no shortage of factors influencing oil prices today. Just to name a few: China’s growth is slowing; emerging market currencies have crashed; oil supply continues to exceed demand; oil in storage is at record levels; and Fed rate hikes may or may not be forthcoming. This all adds up to a period of incredible volatility. That outlook probably won’t change over the course of 2016.

Oil Tumbles Under $30 As Iran Refuses Doha Proposal, Goldman Warns "Freeze Doesn't Help" - Oil prices limped higher overnight in their ubiquitous carry-driven way, only to tumble quickly this morning as the reality that, as Goldman says "at record levels, this production freeze doesn't help at all") and clear indications from the meetings in Tehran that Iran will do 'whatever it takes' to increase its production to pre-sanctions levels. WTI is back below $30. As Bloomberg notes Any output-freeze agreement among key oil producers is being dismissed out of hand by oil bears. William Edwards, a Katy, Texas-based consultant, who has said since late 2014 prices will go low and stay low for years, says this latest proposal wouldn't even cut production, which he says must happen for price recovery."For OPEC, the sequence is as follows," Edwards tells WSJ. "It spends a year or two saying 'you cut," meaning everyone except OPEC. Then it'll spend another year or two saying 'We all should cut.' Finally, when prices are so low it has no choice, OPEC will say 'we've agreed to cut, starting in six months." And as Goldman's Damien Courvalin warns, keeping output at record levels doesn't help...

Crude Confused - WTI Rallies As Iran 'Supports' OPEC Freeze But Won't Cut Production -- The algos are happy. Headlines proclaim Iran "supports" the Doha proposal to "freeze" oil production levels (at record levels) and oil spikes. However, what they failed to grasp was Iran's lack of commitment to actual production levels... i.e. Iran fully supports production cuts for everyone else... but will not freeze its own production.

WTI Crude Soars To $31 - Erases All "Production Freeze" Disappointment Losses - So let's get this straight. Russia and OPEC 'agree' to consider (not actually act upon) "freezing" production levels (at current record high levels) and the market plunges amid disappointment over no cuts. And today WTI spikes and erases all those losses as Iran supports the "freeze" plan but will not cut its own production plans... As Reuters reports, Iran said on Wednesday it would resist any plan to restrain its oil output as fellow OPEC ministers tried to persuade the country to join the first global oil pact in 15 years. Talks in Tehran between Iranian oil minister Bijan Zanganeh and his counterparts from Iraq, Qatar and Venezuela lasted for nearly three hours. Visiting ministers left without making comment. "Asking Iran to freeze its oil production level is illogical ... when Iran was under sanctions, some countries raised their output and they caused the drop in oil prices." Iran's OPEC envoy, Mehdi Asali, was quoted as saying by the Shargh daily newspaper on Wednesday. "How can they expect Iran to cooperate now and pay the price?" he said."We have repeatedly said that Iran will increase its crude output until reaching the pre-sanctions production level."  And so - Crude rallies??!!

API says crude-oil inventories fell 3.3 million barrels: reports - The American Petroleum Institute on Wednesday said U.S. crude-oil inventories fell by 3.3 million barrels in the latest week, according to news reports. The data from API, an industry trade group, is watched for clues to weekly data from the Energy Information Administration due Thursday morning. Analysts surveyed by The Wall Street Journal produced an average forecast for a 3.1 million barrel rise in oil inventories.

US oil surges after crude stocks fall: U.S.oil prices rose near 8 percent on Wednesday, after an unexpected drop in crude inventories. Crude inventories fell by 3.3 million barrels in the week to Feb. 12 to 499.1 million, compared with analysts' expectations for an increase of 3.9 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub dipped by 175,000 barrels, API said. Refinery crude runs fell by 27,000 barrels per day, API data showed. Oil futures have staged a rebound from their lowest levels in a dozen years, bouncing after Iran voiced support for a move led by Russia and Saudi Arabia to freeze production in an oversupplied market. Iranian Oil Minister Bijan Zanganeh met counterparts from Venezuela, Iraq and Qatar in Tehran for over two hours on Wednesday, saying the proposed production "ceiling" should be the first step toward stabilizing the market. Zanganeh, quoted by Tehran's Shana news agency, did not say explicitly say that Iran will keep its own output at January's levels, in line with the proposal that major producers including Russia and Saudi Arabia restrict output. But the tacit endorsement from Iran helped pushed global crude benchmark Brent up more than $2 a barrel. Tehran has been the main obstacle to the first joint OPEC and non-OPEC deal in 15 years, after its pledge to recapture market share lost during years of sanctions.

Oil Extends Gains Above $31 After API Reports Surprise Inventory Draw -- Against expectations of a 3.5mm build (following a small draw last week), API reports totalcrude oil inventories shockingly drew down by 3.3 million barrels. Meanwhile Cushing inventories also drew down (by 175k versus expectations for a 700k build and 523k build last week), but we note that Gasoline inventoriers rose (by 750k) for the 14th week in a row. API Breakdown:

  • Crude down 3.3 million
  • Cushing: up 175,000
  • Gasoline up 750,000
  • Distillate down 2 million

UAE energy minister refuses to discuss tentative oil cap (AP) — Dodging reporters’ questions, the United Arab Emirates’ energy minister refused Wednesday to discuss a proposed cap to crude oil production agreed to by four oil-producing countries the day before, raising new questions about the proposal aimed at stabilizing global prices. Minister Suhail Mohamed al-Mazrouei’s stance suggests regional rivalries also may be in play, as Russia and Saudi Arabia joined Qatar and Venezuela on Tuesday in agreeing to the deal if other producers go along. The surprise closed-door meeting involving the four countries in the Qatari capital, Doha, apparently did not include an Emirati official. Qatar and the Emirates, both oil and gas powerhouses in their own right, also compete with each other in the aviation industry and cultural pursuits. Al-Mazrouei, who gave a keynote address at the 2016 CIS Global Business Forum in Dubai, mentioned low oil prices in passing in his speech. Afterward, journalists followed him outside. “I will only talk about this conference,” he said, before smiling and walking away from reporters’ shouted questions. Al-Mazrouei then entered a side room at the hotel hosting the event. Security guards later arrived to put up a golden rope to keep journalists away. He left some 15 minutes later, still trailed by shouted questions.

Iran snubs Doha proposal, won't freeze oil output — Iran appeared Wednesday to back a plan laid out by four influential oil producers to cap their crude output if others do the same, though it offered no indication that it has any plans to follow suit itself. The agreement reached in Doha the day before by Qatar, Saudi Arabia, Russia and Venezuela is aimed at stabilizing global oil prices, which recently plunged to less than $30 a barrel, a 13-year low. But Iran is keen to ramp up exports to regain market share now that sanctions related to its nuclear program have been lifted under a landmark agreement. “Iran supports any measure to boost oil prices,” Oil Minister Bijan Namdar Zanganeh said after talks with his counterparts from Iraq, Venezuela and Qatar. “The decision taken to freeze the production ceiling of OPEC and non-OPEC members to stabilize and boost prices is also supported by us,” he added, in comments posted on the ministry’s website late Wednesday. Iran’s envoy to OPEC, Mahdi Asali, had earlier blamed the fall in prices on oversupply, and said it was up to Saudi Arabia and others to cut production. He said the four nations that participated at the Doha gathering could stabilize oil prices on their own — if they cut their production by 2 million barrels a day. “These countries increased their production by 4 million barrels when Iran was under sanctions,” Asali was quoted as saying by the Shargh daily. “Now it’s primarily their responsibility to help restore balance on the market. There is no reason for Iran to do so.”

Iran Balks at Committing to Capping Its Oil Production - WSJ: Iran dented the efforts of other big oil exporters to limit production Wednesday by refusing to curb its own output, demonstrating the limits of OPEC’s power to boost prices amid rising tensions among its members. Iran’s oil minister Bijan Zanganeh’s decision threw into question the future of a plan brokered by Saudi Arabia and Russia this week for major oil producing countries to limit their output to last month’s levels. The efforts come as the Organization of the Petroleum Exporting Countries scrambles to find ways to prop up an oil market rocked by surging production that outpaces demand by more than one million barrels on any given day. Prices have fallen by two-thirds since June 2014, throwing global markets into turmoil and ravaging OPEC countries like Venezuela and Nigeria and nonmember Russia.“If Iran is working outside OPEC, the group cannot move. OPEC cannot do anything without Iran.” The broken-down oil talks also added a new layer to the heightening tensions between Saudi Arabia and Iran, longtime rivals who are the Middle East’s dominant powers for the Sunni and Shiite strains of Islam, respectively. Iran and Saudi Arabia are backing opposing sides on several battlefields, including Syria, where Iran supports President Bashar al-Assad and Saudi Arabia supports opposition groups who want to unseat him in the country’s five-year war. Saudi Arabia is also leading a military coalition in Yemen fighting Shiite Houthi rebels whom Iran says it supports politically.

First Iran, Now Iraq Refuses To Commit To Oil Production Freeze -- For all the euphoria about the proposed OPEC oil production freeze deal, the reality is that nothing has been actually decided. As readers will recall, the only "decisions" agreed to between the Saudi and Russian oil ministers were to cap production at already record high levels of output, however contingent on everyone else voluntarily joining said production cap.  Then yesterday, as part of its own meeting, Iran made it clear that while it supports efforts to push the price of oil higher, it would certainly not limit its output at current levels, and instead requires an explicit loophole granting it a production limit from the pre-sanctions period. This put OPEC in a bind: if it grants Iran special treatment, then who else will have a similar request. The answer was revealed just hours later when Iraq earlier today stopped short of saying it would curb production of oil to prop up sagging prices, saying negotiations are still ongoing between members of the Organization of the Petroleum Exporting Countries. According to the WSJ, Iraq oil minister Adel Abdul Mahdi said his country supports any decision that will serve producers, prop up prices and achieve balance in the crude markets. However, just like Iran he didn’t explicitly say whether Iraq would curb its own output but said any rapprochement between all sides to restrict crude output is a step in the right direction. As the WSJ summarizes, his comments "came a day after Iran’s oil minister didn’t commit to limiting production, throwing into question the future of a plan brokered by Saudi Arabia and Russia this week for major oil producing countries to limit their output to last month’s levels." “The deterioration of the oil prices has directly impacted the global economy and the historical responsibly of the producers requires great speed in finding positive solutions that will help prices return to the normal [levels],” Mr. Abdul Mahdi said in a statement. In other words, more of the same, or as we summarized it with a brief tweet one week ago: Everyone wants higher oil prices; nobody wants to cut production

Oil gives up big price gains after Saudi comments, rise in inventories - Oil futures posted a mixed finish Thursday, giving up big gains after an official from Saudi Arabia was quoted as saying the world’s swing producer was “not prepared” to cut oil production. Those comments also came amid a rise in U.S. inventories of crude, gasoline and distillates.. “If other producers want to limit or agree to a freeze in terms of additional production that may have an impact on the market but Saudi Arabia is not prepared to cut production,” Saudi Foreign Minister Adel Al Jubeir told Agence France-Presse in an interview Thursday. The Saudi official’s comments come after the world's top oil producer reached a tentative agreement with Russia earlier this week to freeze production at current levels if other producers went along. Iran on Wednesday welcomed the pact but didn't indicate it would comply.Light, sweet crude futures for delivery in March finished with a gain of 11 cents, or 0.4%, at $30.77 a barrel on the New York Mercantile Exchange, after trading as high as $31.98 earlier in the day. April Brent crude on London’s ICE Futures exchange fell 22 cents, or 0.6%, to end at $34.28 a barrel. Oil futures weakened after the Energy Information Administration said U.S. commercial crude inventories rose 2.1 million barrels in the week ended Feb. 12. That was smaller than the 3.3 million barrel build penciled in by economists surveyed by oil-data firm Platts. It came under additional pressure after the Saudi official’s comments were reported. On the inventory front, both gasoline and distillates showed unexpected rises, with gasoline stocks up 3 million barrels and distillate inventories up 1.4 million. The Platts survey found analysts looking for a 1-million-barrel fall in gasoline stocks and a 1.4 million-barrel drop in distillates.

My Thought Exactly: The Build Was Unexpected, And Other Thoughts; Say What You Want: I Dare You To Find Any Data Points That Reflect US Economy Better Than These Two Data Points -- February 18, 2016  - Bruce Oksol - The "teaser": crude oil / petroleum products / gasoline much greater than expected. Wow. My sentiments exactly. Platts is reporting:

  • Imports surged 795,000 barrels per day (b/d), driving stocks higher
  • Crude runs rose 338,000 b/d to 15.848 million b/d
  • Gasoline, distillate stocks each showed surprise build

  U.S. commercial crude oil stocks rose 2.147 million barrels in the week that ended Friday, Energy Information Administration data showed Thursday.  Stocks have risen nearly 22 million barrels over the last six reporting periods, pushing inventories into record-high territory. At 504.105 million barrels, crude stocks sit 36.3% above the five-year average for this time of year. Analysts surveyed Tuesday by Platts expected a slightly larger build of 3.3 million barrels last week.Crude runs increased 338,000 b/d to 15.848 million b/d, helping offset the size of last week's build. It was the first time the amount of crude processed by refiners rose on a week-on-week basis since late December, raising the possibility that facilities have returned from performing seasonal maintenance. Refinery utilization rose 2.2 percentage points to 88.3% of operable capacity. Analysts expected a decrease of 0.5 percentage point.On the U.S. Gulf Coast, home to more than half of U.S. operable crude distillation capacity, refinery utilization increased 3.1 percentage points to 87.8%. This is quite incredible. There had been expectations that the global crude oil glut could be "burned off" within this calendar year and things would turn a bit "better" by the end of the year. This has to be particularly bad news for everyone but perhaps Saudi Arabia has to be most concerned.

Cushing Is Denying Storage Requests: Some Troubling Data From Genscape And Goldman Yesterday, one of the best-known providers of energy market intelligence thanks to its massive private and patented network of land, sea, and satellite monitors, Genscape, held a webinar titled the "Current state of the global oil market" in which it covered all the core aspects that investors in the oil space find concerning, among which the following:

  • Global oversupply of oil
    • OPEC's dilemma with Saudi Arabia keeping up pressure to not cut production
  • North American crude oil production forecast
    • Impact of sustained weakness in crude oil prices on U.S. production
    • What does the decline in U.S. production mean for the storage glut and refinery supply?
  • U.S. oil storage
    • Cushing, OK, storage record-highs in April 2015 and January 2016
    • Where will the crude oil go?
    • Expectations for additional storage coming online

While some the key topics discussed focused on the most followed issue, namely total US supply and commercial oil stocks, which as can be seen are now at a record high and rising...... and in fact at 504 million as of today's DOE update which saw the addition of another 2.1 mmb last week, pushing total stocks to 78mmb (18%) above year ago levels...

United Arab Emirates backs oil producers' output freeze plan - The United Arab Emirates threw its support on Thursday behind a plan by major oil producers to freeze output levels in an attempt to halt a slide in crude prices that has pushed them to their lowest point in more than a decade. Russia, Saudi Arabia, Qatar and Venezuela announced their willingness to cap output at last month’s levels at a surprise meeting in Qatar this week— but only if other major oil producers join them. OPEC member Kuwait has since said it supports the proposal, and Iran has offered at least tentative backing. The support from the Emirates, a close Saudi ally, does not come as a major surprise but is still significant. The seven-state federation is OPEC’s third-largest oil producer. Energy Minister Suhail Mohammed al-Mazrouei said in a statement to state news agency WAM that the Emirates supports any proposal to freeze output through consensus with OPEC and Russia, which is not part of the oil-producing bloc. “We believe that freezing production levels by members of OPEC and Russia will have a positive impact on balancing future demand based on the current oversupply,” he said. He was also quoted as saying he believes current conditions will prompt producing countries to cap existing output, if not cut supply. The UAE, he said, “is always open for cooperation with everyone in order to serve the higher interests of the producers and the balance of the market.” A day earlier, Iranian Oil Minister Bijan Namdar Zanganeh said after talks with counterparts from Iraq, Venezuela and Qatar that his country “supports any measure to boost oil prices” but stopped short of committing Iran to capping its own output. Iran has previously said it aims to boost production above its roughly 2.9 million barrels a day now that sanctions related to its nuclear program have been lifted.

Oil Rally Stalls As Iran Declines to Commit to Freeze - The oil markets are still trying to digest the implications of the OPEC production freeze announced earlier in the week. Several days of strong gains in oil prices gave way to more cautious skeptical trading sessions on Thursday and Friday. WTI and Brent were down to close out the week.  Iran’s response to the deal, while couched in positive language, was decidedly non-committal. Few expect Iran to participate in the freeze deal, and its top energy officials have said as much in the days leading up to the negotiations. Iran will continue to increase production as much as it can as it seeks to regain ground that it has lost over the past four years. As a result, with participating nations producing pretty much flat out, the freeze deal will have little material effect on the fundamentals of the oil market. The one potential positive is that the freeze might build trust, potentially creating the conditions for further negotiations.  As a result, with supply continuing to outstrip demand for at least half of this year, oil prices may not budget off their lows for a few months. That is very bad news for several oil-producing countries, with Nigeria, Iraq, and Venezuela topping the list of countries in crisis. “You’ve got half of OPEC in existential crisis as to whether they can be viable governments at this point,” Allen Gilmer, CEO of energy consulting firm Drilling Info Inc., told Bloomberg.  Crude oil inventories continued to climb this week (see chart above), defying expectations. The U.S. saw stocks build by another 2.1 million barrels for the week ending on February 12. The key storage hub of Cushing, OK, was flat at 64.7 million barrels, or about 90 percent full. That weighed on the markets following the OPEC-Russia deal as the realization of persistent oversupply regained prominence.

Brent down as U.S. crude build eclipses output freeze plan | Reuters -  Brent settled lower on Thursday after data showing U.S. crude inventories rose to record highs overshadowed production freeze plans by oil major producers that had sharply boosted the market this week. The U.S. government's Energy Information Administration (EIA) said crude stockpiles rose 2.1 million barrels last week, to a peak of 504.1 million barrels in the third week of hitting record highs in past month. [EIA/S] The EIA also cited record high gasoline inventories and higher stocks of distillates that include heating oil and diesel. Brent LCOc1, the global benchmark for crude, settled down 22 cents at $34.28 a barrel, having risen more than $1.20 before the data. It had gained a total of more than $4 between Friday and Wednesday. U.S. crude CLc1 settled up by a modest 11 cents at $30.77 a barrel, after an earlier peak at $31.98. Reuters data showed the daily volume in U.S. crude futures at just over 200 million barrels, down 75 percent from two weeks ago.

US rig count drops 27 this week to 514; Texas down 12  — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by 27 this week to 514. The Houston company said Friday 413 rigs sought oil and 101 explored for natural gas amid depressedenergy prices. A year ago, 1,310 rigs were active. Among major oil- and gas-producing states, Texas declined by 12 rigs, Oklahoma and North Dakota each dropped three, Louisiana fell by two, and Colorado, Kansas, New Mexico and Wyoming dropped one apiece. Alaska, Arkansas, California, Ohio, Pennsylvania, Utah and West Virginia  were all unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

Oil rig count plummets yet again - Fuel Fix: The number of rigs drilling for oil in the U.S. dropped by 26 this week, leaving just 413 rigs still seeking crude, according to Baker Hughes data. Including gas rigs, the overall rig count of 514 rigs is at its lowest point since the last century, specifically 1999. The total count is rapidly approaching the 1999 low of 488 rigs, which was the lowest point in Baker Hughes’ recorded history. Another drop of 26 rigs would tie the all-time record low. Analysts expect the rig count to continue falling through much of the first half of the year. The U.S. benchmark for oil continues to hover at about $30 a barrel. In the first two months of 2016 alone, drillers have mothballed 123 oil rigs. The natural gas rig count dropped by just one this week down to 101 rigs, which already is at a historic low. Texas is still home to 46 percent of the nation’s operating rigs, but the biggest losses this week came from the Lone Star State. Seven rigs went dark in the Permian Basin and the Eagle Ford shale lost another four rigs. The Permian and Eagle Ford, in that order, are still the most active plays in the country. The oil rig count is now down nearly 75 percent from its peak of 1,609 in October 2014 before oil prices began plummeting.

US Oil Rig Count Collapses At Fastest Rate In A Year - Rig counts dropped for the 9th straight week but for the 3rd week in a row, US oil rig counts dropped heavily, down 26 this week after -28, and -31 in the last 2 weeks. The 85 rig drop is a 17% plunge over 3 weeks - the fastest pace since Feb 2015, and 2nd fastest since Feb 2009.

US rig count down 27; firms plan to shed more units - Oil & Gas Journal: The latest drilling dive continued during the week ended Feb. 19, with the US rig count shedding 27 units to bring the current total to 514, Baker Hughes Inc. reported. All but one of those units targeted oil. Over the past 3 weeks alone, the count has plunged 105 units. Compared with the recent peak during Sept. 12-26, 2014, the count is down 1,417 units. Exploration and production firms have entered 2016 with slashed budgets and improved efficiencies, reflected in the double-digit drop-off in rigs in each of the first 7 weeks of the year.  As such, financial services firm Raymond James & Associates Inc. last week further reduced its forecast US rig counts for 2016-18, now projecting an average 2016 count of 500, down nearly half compared with the 2015 average (OGJ Online, Feb. 12, 2016). The new bottom is expected occur in April at 400 units. The nadir of the 1998-99 downturn was 488 units on Apr. 23, 1999, which also represents the low point in BHI data dating back to July 1987. During the 2008-09 downturn, the lowest point was 876 on June 12, 2009. RJA doesn’t see a drilling rebound until late 2016, as many E&P firms are likely to first focus on drawing down their uncompleted well inventories and improving their balance sheets, while waiting for consistently higher crude oil prices and a labor force recovery. US oil-directed rigs, down 26 during the week, now total 413, down 1,196 units since their peak in BHI data on Oct. 10, 2014. Dropping units in 9 straight weeks now, the oil-directed count is at its lowest level since Dec. 18, 2009. Gas-directed rigs edged down a unit to 101, their new lowest total in BHI data dating back to July 1987. All 27 units to go offline this week were on land. Rigs engaged in horizontal drilling continued their dive, shedding 17 units to 416, down 956 units since a peak in BHI data on Nov. 21, 2014, and their lowest point since July 31, 2009.

Oil is now so cheap even pirates aren’t stealing it any more -  Stealing the oil from a ship is no mean feat. Oil tankers are enormous, and ships that carry expensive cargo are designed to be difficult to board. Stealing can mean hijacking the original tanker, disabling its tracking devices, taking it to a location where it can’t be spotted, and transferring thousands of heavy barrels to a different vessel that can then be sailed away. Stealing crude also means finding a buyer for it, or else getting involved in the messy and dangerous business of illegal refining. Over the past six months, the price of oil has plunged due to a global oversupply. And for some pirates, it’s just not worth stealing it any more. “With oil at a low bottom price of below $30 per barrel, piracy is no longer such a profitable business as it was when prices hit $106 a barrel a few years ago,” said Florentina Adenike Ukonga, the executive secretary of the Gulf of Guinea Commission—a regional body that exists to promote cooperation between West African states, many of which export oil via tanker—in an interview with Bloomberg. She said that the drop in oil prices, which have fallen by $100 since July last year, was a factor in reducing piracy in the area. In fact, piracy was falling before the price of oil tanked. In 2013, there were 100 attacks on separate vessels in the Gulf of Guinea (pdf), of which 56 were successful, according to Oceans Beyond Piracy, an American non-governmental organization that tracks maritime crime. By 2014, that had fallen to 67, of which 26 were successful. That fall happened before the price of oil began its downward slide—though OBP estimates that, in any year, 70% of attacks in the region go unreported.

UAE Offers India Free Oil To Ease Storage Woes -- In an oil sector first, the oil-rich United Arab Emirates (UAE) has offered free oil to India in return for a storage deal at India’s planned underground facility as the supply glut worsens and some analysts predict that ‘’peak storage” could sending prices crashing further.  The UAE’s Abu Dhabi National Oil Company (ADNOC) has agreed to store crude oil in India's maiden strategic storage facility, sweetening the deal by saying India could take two-thirds of the oil for free.  It’s a great deal for India, which is almost fully reliant on imports to meet its crude oil needs.  India has lured Abu Dhabi in with the building of a massive underground storage facility system that will be able to take on 5.33 million tons of crude as a bulwark against global price shocks and supply disruptions.  ADNOC is eyeing half the storage capacity at one of the new underground facilities, Mangalore, which has a 1.5-million-ton capacity on its own. Abu Dhabi plans to stock 0.75 million tons, or 6 million barrels of oil, here, and 0.5 million tons will belong to India. The deal is reflective of a wider, global storage panic and talk of what could happen when we reach ‘’peak storage’’. A number of analysts have suggested that oil prices might crash to $20, or even $10 a barrel, if storage tanks become full. Storage is now at the highest level in at least a decade. In the U.S., crude storage levels hit 487 million barrels in early November, closing in on the 80-year high of 490 million barrels hit earlier this year. According to the U.S. Energy Information Administration (EIA), about 60 percent of the U.S.’ working storage capacity is filled.

U.A.E. Central Bank Foreign Assets Decline $12 Billion - -- The United Arab Emirates central bank’s foreign assets fell by $12 billion in January from the previous month as the Arab world’s second-biggest economy grapples with falling oil prices and bets against its currency. Foreign assets declined to 296.9 billion dirhams ($81 billion) from 341.1 billion dirhams, according to data posted on the central bank’s website. Cash, bank balances and deposits with banks abroad dropped almost 30 percent to 122.2 billion dirhams, while investments in held-to-maturity foreign securities and other foreign assets increased, according to the data. Oil producers in the six-nation Gulf Cooperation Council, which includes Qatar, Kuwait and the biggest Arab economy of Saudi Arabia, are seeing their public finances deteriorate as crude prices hover near 12-year lows. Net foreign assets of the Saudi Arabian Monetary Agency, the kingdom’s central bank, have fallen in the 11 months to December as the country sought to bridge its budget deficit. Twelve-month forward contracts for the U.A.E. dirham, used partly to bet on a devaluation of the currency, climbed to 325 points last month, their highest since 2009. The U.A.E. holds about 6 percent of global crude reserves. Most of the country’s cash reserves are held by its sovereign wealth fund, the Abu Dhabi Investment Authority, whose assets Fitch estimated would decline to $475 billion at the end of this year.

Iran exports first oil shipment to Europe since nuclear deal — Iran says it has exported its first crude oil shipment to Europe since it reached a landmark nuclear deal with world powers, the official IRNA news agency reported Sunday. IRNA quoted Deputy Oil Minister Rokneddin Javadi as saying the shipment was the first in five years and marked “a new chapter” in Iran’s oil industry. He did not elaborate but IRNA said several western tankers have loaded Iran’s oil in recent days. Iran plans to add one million barrels to its oil production following implementation of the nuclear deal, which lifted international sanctions in exchange for Iran restricting its nuclear activities. Iran expects an economic bonanza after the lifting of sanctions, which will allow it to access overseas assets and sell crude oil more freely. Javadi said Iran has already reached agreement to export oil to France, Russia and Spain. The country used to export 2.3 million barrels per day but its crude exports fell to 1 million in 2012. Iran’s total production currently stands at 3.1 million barrels per day. In order to retake its market share, Iran said in January that it will add to its production despite the drop in prices and should not be blamed for the further price drops. Iran’s regional rival Saudi Arabia is OPEC’s largest producer.

Iran could decide fate of first global oil deal for 15 years | Reuters: The fate of the first global oil deal in 15 years could be decided on Wednesday when OPEC members travel to Iran to persuade the country to participate in a deal to freeze output levels, possibly by offering Tehran special terms. Dominant OPEC power Saudi Arabia and non-OPEC Russia, the world's top two producers and exporters, agreed on Tuesday to freeze production levels but said the deal was contingent on others joining in - a major sticking point with Iran absent from the talks and determined to raise production. OPEC members Qatar, Venezuela and Kuwait said they were also ready to freeze output and oil sources in Iraq - the world's fastest-growing producer in the past year - said Baghdad would abide by a global deal aimed at tackling a growing oversupply and helping prices recover from their lowest in over a decade. On Wednesday, Venezuelan Oil Minister Eulogio Del Pino and Iraqi Oil Minister Adel Abdel Mahdi will travel to Tehran for talks with their Iranian counterpart Bijan Zanganeh. OPEC member Iran, Saudi Arabia's regional arch rival, has pledged to steeply increase output in the coming months as it looks to regain market share lost after years of international sanctions, which were lifted in January following a deal with world powers over its nuclear programme."Our situation is totally different to those countries that have been producing at high levels for the past few years," a senior source familiar with Iran's thinking told Reuters. Benchmark Brent oil prices LCOc1 fell 2 percent on Tuesday to below $33 per barrel on concerns that Iran may reject the deal and that even if Tehran agreed it would not help ease the growing global glut

Iran defends right to raise oil output -- Iran said it will defend its right to raise oil production to pre-sanctions levels, ahead of a meeting with other Opec members, hoping to convince the country to join a co-ordinated production freeze. Tehran’s position is likely to complicate attempts by the oil ministers of Venezuela and Qatar to reach a deal with Iran’s oil minister Bijan Zanganeh and his Iraqi counterpart on Wednesday. A provisional agreement to freeze oil production at January levels was reached in Doha on Tuesday between Saudi Arabia and Russia, the world’s two biggest exporters, as well as Qatar and Venezuela. The deal is contingent on other big producers taking part. This is the first attempt to restrict output and bolster prices to win backing from Opec’s de facto leader, Saudi Arabia, as well as Russia, the largest oil exporter outside the cartel. Iran wants to maximise production, however, after seeing exports shrink under years of sanctions linked to its nuclear programme, which were only lifted last month. “It is illogical to ask Iran to further decrease its output,” Iran’s Opec envoy Mehdi Asali told local newspaper Shargh. “Under the current circumstances that Iran’s production is much below its quota, it cannot expect us to further decrease our production,” he said. Other countries have already raised output to record levels after the world’s biggest producers embarked on a battle for oil market share almost 18 months ago, with Saudi Arabia leading the push to target higher-cost producers, including US shale and Canadian tar sands. Since then, the oil price has collapsed by 70 per cent and dropped below $30 a barrel at the end of last month, a level far lower than many Opec members expected crude to fall to. Mr Asali blamed Iran’s Opec rivals for “irresponsible” behaviour as they increased production when Iran was under sanctions.

Brazil ditching dollar to boost Iran trade -  Brazil says it will ditch the dollar in trade with Iran to sidestep a US ban which prevents Tehran from using the American financial system.  Trade Minister Armando Monteiro has said Brazil seeks to boost business relations with Iran after the lifting of sanctions on Tehran, even though Washington has opted to maintain its “primary” embargo on the country.  "Everyone is racing after Iran now. The trade potential is very big," Monteiro told Reuters on Tuesday.  He said Brazil will find ways to settle payments and the type of payment and currency in transactions with Iran which President Dilma Rousseff could visit this year. Rousseff lifted sanctions against Iran last week after meeting with the Iranian ambassador, hoping to bolster trade between the two nations, which have enjoyed warm ties for years despite tensions with the West. Latin America's biggest economy aims to triple trade with Iran to $5 billion by 2019, Monteiro said. He said Iran has already contacted Brazil's Embraer, the world's No. 3 commercial plane manufacturer, for the purchase of commercial jets for regional aviation.  Iran is eyeing the four models of Embraer's E1 family of regional jets, because of their low maintenance costs, Reuters said, quoting an official spokesman for the company. "Iran is a very interesting market because there is a lot of repressed demand and it is a huge country so there is great potential for regional aviation," the spokesman said. Monteiro said Iran is also interested in Brazilian cars and trucks as well as machinery to renew its oil refinery network.

Can Pakistan Use Qatar LNG Price Leverage For Better Iran Gas Deal? -- Pakistan has recently negotiated a good bargain with Qatar for importing $16 billion worth of LNG.  LNG arriving in Pakistan from Qatar will fetch 13.37% of the preceding three-month average price of a Brent barrel (considering the present Brent price as a proxy, that would equate to $167.5 per 1000 cubic meters), according to a report in Azerbaijan's Trend  News.  It translates to $4.50 per million BTUs.A comparison with Iran's gas deals with Turkey and Iraq indicates that Iranian gas will not be competitive with Qatari LNG on Pakistani market. In 2014 Iran was exporting gas to Turkey at above $420 per 1000 cubic meters, but the figure plunged to $225, or $6 per million BTUs, currently due to low oil price. Iran previously said that the price of gas for Iraq would be similar to Turkey. International Chamber of Commerce (ICC) arbitration court has recently ordered Iran to reduce its gas price to Turkey by 15% after Turkey complained. It's not clear if Iran will comply but even if it does, its price price will still be $5.10 per million BTUS, much higher than the Qatari LNG price of $4.50 per million BTUs for Pakistan.  As recently as two years ago, LNG shipped to big North Asian consumer like Japan and Korea sold at around $15 to $16 a million British thermal units. Late last year, the price hit $6.65 a million BTUs, down 12% from September, according to research firm Energy Aspects. It expects prices to fall further in Asia this year, to under $6 per million BTUs, as a wave of new gas supply in countries from the U.S. to Angola to Australia comes on line, according to Wall Street Journal.  Petronet LNG Ltd, India’s biggest importer of liquefied natural gas (LNG), is saving so much money buying the commodity from the spot market that it’s willing to risk penalties for breaking long-term contracts with Qatar. Will Pakistan be able to negotiate a better price with Iran? It seems difficult given the fact that Iranians have a reputation of being very difficult to deal with.

As ISIS Bears Down On Oil Riches, Libya Makes Last Ditch Effort To Form Government -- Early last month, we outlined the rapidly deteriorating security situation in Libya, which was transformed into a lawless wasteland in the wake of NATO-backed efforts to topple Muammar Gaddafi in 2011. The story is hopelessly convoluted but generally speaking, there are two governments. One in Tripoli and one internationally recognized body operating out of Tobruk, where the House of Representatives remains in exile after efforts to form a unity government in the capital fell apart. The fractured government makes protecting the state’s oil infrastructure virtually impossible in the face of an increasingly aggressive ISIS assault. Fighters loyal to Ibrahim Jadhran - the shady militia leader who effectively controls Libya’s oil exports - are fighting to secure the country’s crude, but ISIS is set to overrun them and even if they weren’t there are very real questions about where Jadhran’s loyalties lie. Russian airstrikes in Syria and an increasingly capable Iraqi military have made Libya look more attractive to ISIS. There’s little in the way of airstrikes, the government is completely incapable of defending itself, and vast stores of oil are there for the taking. It’s against this backdrop that the US and Britain are considering a ground operation as part of an effort to “stabilize” the country, which is ironic because it was NATO that destabilized the country in the first place.

In Unexpected Twist, Oil Exporters Are Buying Treasurys While They Liquidate Stocks -- Long before the mainstream media caught on to the topic of SWF selling of stocks, we warned a month ago that as a result of the collapse in oil, and assuming oil remains priced at roughly $31 per barrel, the world's largest SWFs shown in the chart below...... would be forced liquidate at least $75 billion in equities and the lower the price of oil goes, the more selling there would be. Subsequently, we showed both the equity sector and region allocation of SWF equity exposure, noting that financial stocks located in Western Europe are most exposed, something both DB and CS have found out the hard way. We also warned (ironically, courtesy of a Deutsche Bank analysis) to stay away from European stocks with high EM government ownership such as these: Yet while the wholesale equity selling by SWFs has become manifest just as predicted, in recent months something unexpected emerged when looking at other asset classes in which SWFs are involved, most notably Treasurys. " Unexpected", because US Treasury paper was one of the asset classes many expected would feel the brunt of SWF selling, perhaps much more so than equities. Quite the opposite has not happened. As Stone McCarthy writes, based on TIC data for Asian oil exporters, those countries have been more aggressively selling risk assets than Treasury securities since oil prices began to slide in mid 2014. The chart below shows the cumulative net purchases of U.S. securities since July of 2013, about a year before oil prices began their descent, for the "oil-exporter" group.

The Hidden Agenda Behind Saudi Arabia’s Market Share Strategy -- Do the Saudis have an oil market strategy beyond pumping crude to defend their market share? Are they indifferent to which countries’ oil industries survive? Or, alternatively, are they targeting specific global competitors and specific national markets?   U.S. import data (from the EIA) suggests the U.S. is not now the Saudis’ primary target, if it ever was. Like other producers, the Saudis operate within a set of constraints. Domestic capacity is one. In its 2015 Medium Term Market Report (Oil), the IEA put Saudi Arabia’s sustainable crude output capacity at 12.34 million barrels per day in 2015 and at 12.42 million in 2016. Export capacity—output minus domestic demand—is another. Rather than maintaining crude output at 2014’s level in 2015, the Saudis steadily increased it after al-Naimi’s announcement in Vienna as they brought idle capacity on line (data from the IEA monthly Oil Market Report): This allowed them to increase average daily crude exports by 460,000 barrels in 2015 over 2014 average export levels—even as Saudi domestic demand increased—and exports peaked in 4Q 2015 at 7.01 million barrels per day (assuming the Saudis keep output at average 2H 2015 levels in 2016, and domestic demand increased 400,000 barrels per day, as the IEA forecasts, the Saudis could export nearly 7 million barrels per day on average in 2016): The Saudis did not ship any of their incremental crude exports to the U.S.—in other words, they did not increase volumes exported to the U.S., did not directly seek to constrain U.S. output, and did not seek to increase U.S. market share. Based on EIA data, Saudi imports into the U.S. declined from 1.191 million barrels per day in 2014 to 1.045 million in 2015—and have steadily declined since peaking in 2012 at 1,396 million barrels per day. (OPEC’s shipments also declined from 2014 to 2015, from 3.05 million barrels per day to 2.64 million, continuing the downward trend that started in 2010). Canada, however, which has sent increasing volumes to the U.S. since 2009, increased exports to the U.S. 306,000 barrels per day in 2015: Also, the Saudi share of U.S. crude imports declined 1.9 percentage points in 2015 from 2014, and has declined 2.6 percentage points since peaking at 16.9 percent in 2013;

Saudi Arabia's credit rating outlook cut to negative at S&P -- Saudi Arabia, the world’s largest oil exporter, had the outlook on its credit grade cut to negative by Standard & Poor’s while other struggling energy-producing  nations had their ratings lowered.  The Saudi kingdom could lose its AA- credit ranking, the fourth-highest debt grade, in two years if its “liquid assets” decline or its fiscal position weaken, S&P said in a statement Monday. The rating company also cut the grades of Oman, Bahrain, Kazakhstan and Venezuela by one step, citing lower oil prices. A 50 percent drop in oil since June is eroding government revenues of energy exporters and dimming their growth prospects. S&P said oil will average $70 a barrel by 2018, down from a forecast of $85 in December, when it lowered Saudi Arabia’s outlook to stable from positive. “Given its high dependence on oil, Saudi Arabia’s currently very strong fiscal position could weaken owing to the oil price decline,” analysts led by Trevor Cullinan at S&P wrote.  Saudi Arabia, which relies on oil and gas for about 90 percent of government revenue and for 85 percent of its exports, may face “sustained” budget deficits over the next few years as lower crude prices persist, the rating company said.

Saudi Rating Gets S&P Jolt as Four Oil-Nation Credits Are Cut -  Saudi Arabia headed a list of oil-producing nations whose credit ratings were cut by Standard & Poor’s on Wednesday amid the collapse in crude prices. The country’s credit grade was cut two levels to A- from A+ as the decline in oil prices will have “a marked and lasting impact” on the economy of the biggest OPEC producer. Oman’s was lowered to BBB- from BBB+, following a reduction in November. Kazakhstan is now rated BBB-, down from BBB, while Bahrain was lowered to BB from BBB-, putting it two steps below investment grade and the only one of the four to be rated junk. The Saudi downgrade comes less than four months after S&P cut the kingdom’s credit rating one level to A+ in late October, when Brent crude was selling for around $50 a barrel. It settled at $34.50 a barrel in London on Wednesday. The agreement made this week among the world’s leading oil producers to curb production and revive prices won’t have a material impact on S&P’s crude price assumptions, the company said in a statement. “The fact that Standard and Poor’s cut the ratings of a number of energy-exporting countries reflects the agency’s outlook on the price of oil,” Steve Hooker, who helps oversee $12.5 billion of debt at Newfleet Asset Management LLC in Hartford, Connecticut, said by phone. “Even though a slump in oil prices isn’t news to anyone, this sends a signal to the markets and adds to the nervousness regarding the prospects for Brent’s performance.” Saudi Arabia’s growth in real per-capita gross domestic product will fall below that of its peers, while the annual average increase in the government’s debt burden could exceed 7 percent of GDP through 2019, according to the S&P statement. The outlook for the rating is stable, reflecting an expectation that the country “will take steps to prevent any further deterioration in the government’s fiscal position” the credit rating company said.

The Curse of Natural Resources -- The NY Times reports on the challenge that young Saudis face as oil prices collapse.  It tells a story of a nation where everyone appears to have a soft life of working for the government.  The piece ends with the following quote:   "Four Saudi workers gathered in a break room said they liked their jobs but worried that they would not be as successful as their fathers, all of whom worked for the government. They knew the government had less money to employ citizens, which meant their generation would have to work harder.  “The government is good, but our generation is spoiled,” said Ahmed Mohammed, 21. “Everyone wants a government job.”  His colleagues agreed. “Everyone wants to sit at home and get paid,” Mr. Alkhelaifi said."  So, the government offered a "free lunch" to the people and created a very unusual nation.  Now that the "good life" is over, how will the people of Saudi Arabia adapt?  Will the young invest in the human capital to be agile in the modern economy?  In the medium term, will there be a silver lining of this natural resource valuation collapse as the people invest in a more sustainable source of wealth (i.e investing in human capital).  With the collapse in oil revenue, will women start to work as the issues that Japan's leader Abe raised a few years ago?  Or, are the people of the Middle East unable and unwilling to make this pivot?  Do you argue that this group has formed an "addiction" to cashing oil checks and now that the money flow is gone that this group won't adapt and might instead turn to violence?   How has Israel achieved great success without oil? Did the absence of oil cause its success as human capital became "the only game in town"?

Russia’s grip on Syria tightens as brittle ceasefire deal leaves US out in the cold - Russia’s economy may be stumbling as oil prices fall, but in a week of extraordinary military and diplomatic turmoil over the war in Syria, President Vladimir Putin has proved that his global influence and ambitions have only been sharpened by financial troubles. For now he seems to be calling all the shots in Syria’s civil war. Russian jets allowed Syrian government troops to break out of a stalemate in Aleppo, cutting supply routes into a city that has been a rebel stronghold for years.  With hundreds of thousands of people facing siege in the ruins of Aleppo, and Europe fearful that thousands more fleeing to the border could trigger a new influx of refugees, top diplomats gathered to agree a flimsy ceasefire deal. Russia wrung so many concessions out of others around the table that the deal seemed more an endorsement of its role in Syria than a challenge to it. Hostilities would not stop for about two weeks and, even when they did, bombing campaigns against “terrorists” could continue. That effectively allows Russia to continue bombing as before, since it has always claimed only to target extremists, while focusing more of its bombs on President Bashar al-Assad’s opposition than on Isis or al-Qaida’s Syrian operation, Jabhat al-Nusra.

Saudi Arabia Enters Syrian Gas Pipeline War  --Directly. With jets and the threat of ground troops. On the behalf of Saudi Arabia.   And on the behalf of their Sunni proxies in Syria that have been fighting for Sunni control over the Arab/ Sunni Pipeline right of way. Who have lately gotten the s–t kicked out of them by the Shiites, and their allies, the Russians – who are fighting to control the Iranian /Shia gas pipeline route through Syria.Or in the case of the Russians, who are probably fighting to keep both gas lines from being built. Update from Zero Hedge: Reports indicate the Turkish army has crossed the border into Syria.“The Syrian government says Turkish forces were believed to be among 100 gunmen it said entered Syria on Saturday accompanied by 12 pick-up trucks mounted with heavy machine guns, in an ongoing supply operation to insurgents fighting Damascus,” Reuters reports. “The operation of supplying ammunition and weapons is continuing via the Bab al-Salama crossing to the Syrian area of Azaz,” the Assad government says.Meanwhile, since all that would take to unleash a full-blown war is for some Russian to be unexpectedly blown up, events like this do not inspire much confidence in the Syrian “ceasefire”: On Saturday, the geopolitical world was shocked when Turkey began shelling Aleppo, where the Syrian opposition has its back against the wall in the face of an aggressive advance by Hezbollah and the IRGC supported, of course, by Russian airstrikes. To be sure, everyone knew Ankara and Riyadh would have to do something quick if they wanted to preserve the rebellion. Their proxies are being rolled up rapidly by Hassan Nasrallah’s army and Vladimir Putin’s air force juggernaut. But few expected the escalation would come so quickly. But Recep Tayyip Erdogan is unpredictable (just ask the lone surviving pilot of the Su-24 Turkey shot down in November) and this weekend, he decided that there’s no time like the present when it comes to starting World War III.

Turkey Says "Massive Escalation" In Syria Imminent As Saudis Set To Launch Airstrikes --Even as all sides - including the US, Russia, Saudi Arabia, and select rebel groups - pretend to be working towards a ceasefire and a diplomatic solution to the five year conflict in Syria, actions speak louder than words, and to put it as succinctly as possible, everyone is still fighting. In fact, the fighting is more intense than ever. Russia and Hezbollah are closing in on Aleppo, the country’s largest city and a key urban center where rebels are dug in for what amounts to a last stand. If the city is liberated by the government (and yes, “liberated” is more accurate than “falls” because occupied territory belongs to the Syrian government, not to Sunni extremists), Assad will have regained control of the country’s backbone in the west.That would effectively mean the end of the rebellion and the Gulf monarchies, not to mention Turkey, are not happy about it. “The main battle is about cutting the road between Aleppo and Turkey, for Turkey is the main conduit of supplies for the terrorists,” Assad said in an interviewwith AFP on Friday. That supply line has been severed and now, it’s do or die time for the rebels’ Sunni benefactors in Ankara, Riyadh, and Doha. Either intervene or watch as Hezbollah rolls up the opposition under cover of Russian airstrikes, restoring the Assad government and securing the Shiite crescent for the Iranians.

Turkey Vows "Harshest Reaction" To Kurdish Advance In Syria As Missiles Hit Hospitals, School - Over the weekend, the biggest story in the geopolitical world was Turkey’s escalation in Syria. With the Sunni-backed opposition on its last legs in Aleppo and under near constant bombardment by Russia from the air and Hezbollah on the ground, Ankara and Riyadh have a decision to make: intervene or allow the rebellion to be crushed. We’ve spilled quite a bit of digital ink explaining why allowing the rebels to be routed really isn’t an option. It would represent a key victory for Iran at a time when the country is already on a roll. International sanctions have been lifted, oil revenue is set to quintuple by year end, and Tehran’s grip on Iraqis military and politicians is stronger than ever. A victory in Syria would be an embarrassment for the Saudis who have funded and armed the opposition and a win at Aleppo would give the Iranians sectarian bragging rights at a time when tensions between Riyadh and Tehran are already running high thanks to the execution of prominent Shiite cleric Nimr al-Nimr. And so, with the stakes high, the Saudis sent warplanes to Turkey’s Incirlik air base and Turkey promised an imminent “escalation.” The problem, we said, is this: somehow, Turkey and Saudi Arabia need to figure out how to spin an attack on the YPG and an effort to rescue the opposition at Aleppo as an anti-ISIS operation even though ISIS doesn’t have a large presence in the area.

At least 7 dead after airstrike hits Doctors Without Borders hospital in northern Syria (Reuters) - Seven people were killed in air strikes in Syria on a hospital supported by Medecins Sans Frontieres (MSF), the charity's France president said on Monday, adding that he believed Russia or Syrian government forces were behind the attack. "There were at least seven deaths among the personnel and the patients, and at least eight MSF personnel have disappeared, and we don't know if they are alive," Mego Terzian told Reuters. The hospital near Murat al-Numan in the northern Syrian province of Idlib was struck earlier on Monday by four missiles. "The author of the strike is clearly ... either the government or Russia," he said, adding that it was not the first time MSF facilities had been targeted in the country. The hospital, which has 54 staff and 30 beds, is financed by the medical charity. MSF also supplies medicine and equipment to the facility.

"We Are In A New Cold War": Russia PM Delivers Stark Warning To NATO -- It was just two days ago when Russian PM Dmitry Medvedev warned that if Saudi Arabia, the UAE, and Qatar invade Syria in a transparent attempt to shore up their Sunni proxy armies currently under siege by Moscow’s warplanes and Hezbollah, a “new world war” would be inevitable.   He also indicated that such a conflict would likely drag on for “decades.”  “Do they really think they would win such a war very quickly? That's impossible, especially in the Arabic world,” Medvedev said. “There everyone is fighting against everyone... everything is far more complicated. It could take years or decades." On Saturday, Medvedev was back at it with the hyperbole (or at least we hope it’s hyperbole) in Munich where more than 60 foreign and defense ministers are gathered for the 52nd Munich Security Conference. In his speech, the PM challenged NATO’s military maneuvers in the Baltics as well as the alliance’s general approach towards relations with The Kremlin. “The political line of NATO toward Russia remains unfriendly and closed,” he said in a speech to the conference. “It can be said more sharply: We have slid into a time of a new cold war.”“NATO on Wednesday approved new reinforcements for eastern Europe, including stepped-up troop rotations on its eastern flanks and more naval patrols in the Baltic Sea,” Bloomberg notes. “In response, the Kremlin dismissed the alliance’s argument that the move was merely defensive.”

US Allies Are Now Fighting CIA-Backed Rebels In Syria – On the same day Syrian President Bashar al-Assad claimed his fighters would retake the entire country “without hesitation,”unnamed American defense officials revealed to the Daily Beastthat the same Iraqi militias who were previously fighting ISIL alongside the U.S. are now actively collaborating with Russian and Iranian forces to “crush” American-backed rebels in Aleppo. According to the report: “At least three Shia militias involved in successful battles against ISIS in Iraq — the Badr Brigade, Kata’ib Hezbollah, and the League of the Righteous — have acknowledged taking casualties in fighting in south and southeast Aleppo province. U.S. defense officials confirmed to The Daily Beast that they believe ‘at least one’ unit of the Badr Brigade is fighting in southern Aleppo alongside other Iraqi militia groups. Those groups are backed by Russian airpower and Iranian troops — and all of whom are bolstering President Bashar al-Assad’s Syrian Arab Army.” Telling of the complex quagmire, the report indicates the same Shia militias fighting with the U.S. to maintain its installed government in Iraq are battling against the U.S.-backed forces - including those armed by the CIA - by bolstering Russian and Iranian efforts to bring control of the Syrian city back to Assad.

Road To World War III: Turkey Shells Syria For Second Day As Saudi Warplanes Arrive - On Saturday, the geopolitical world was shocked when Turkey began shelling Aleppo, where the Syrian opposition has its back against the wall in the face of an aggressive advance by Hezbollah and the IRGC backed, of course, by Russian airstrikes. To be sure everyone knew Ankara and Riyadh would have to do something quick if they wanted to preserve the rebellion. Their proxies are being rolled up rapidly by Hassan Nasrallah’s army and Vladimir Putin’s air force juggernaut. But few expected the escalation would come so quickly. But Recep Tayyip Erdogan is unpredictable (just ask the lone surviving pilot of the Su-24 Turkey shot down in November) and this weekend, he decided that there’s no time like the present when it comes to starting World War III. Officially, Turkey says it’s shelling Kurdish positions in Syria in self defense. It’s all about securing the border against hostiles, Ankara says. Of course the idea that the YPG are set to invade Turkey is laughable. The Syrian Kurds have secured enough space in their own country to declare an autonomous proto-state, and they needn’t aspire to capturing Turkish territory. But for Erdogan, that’s precisely the problem. Ankara fears the YPG’s gains will embolden the PKK militarily and the HDP politically and last June’s elections clearly suggest that an emboldened Kurdish minority has the power to shake up the political scene. And so, Turkey is set to take the fight to Syria in the name of fighting “terrorists”, which for Erdogan, means eradicating the Kurds. As we noted on Saturday, the challenge for Ankara and Riyadh is this: somehow, Turkey and Saudi Arabia need to figure out how to spin an attack on the YPG and an effort to rescue the opposition at Aleppo as an anti-ISIS operation even though ISIS doesn’t have a large presence in the area.

Turkey Will "Definitely" Join Ground Operation In Syria, Accuses Russia Of "War Crimes" -- Turkey shelled Syria for a fourth consecutive day on Tuesday as Ankara steps up efforts to bolster rebels in the face of an advance by the Kurdish YPG. “As many as 150 terrorists were killed during the 4-day-long shelling targeting PYD points,” the pro-government Yeni Safak wrote today, adding that “the PYD, backed by both the US and Russia, is working with President Bashar al-Assad to control areas along the Turkish border.”  The move by Russia and Iran to encircle Aleppo and cut rebel supply lines to Turkey has allowed the YPG to advance on towns near the border, effectively consolidating the group’s grip on northern Syria, where they’ve been highly successful at holding large swaths of territory.That’s an especially undesirable outcome for Ankara where President Recep Tayyip Erdogan is hell bent on rolling back a groundswell of popular support for the pro-Kurdish HDP which, at least in AKP’s mind, is merely the political arm of the PKK.  Erdogan doesn’t distinguish between the PKK (which both Turkey and the US officially designate as a terror group) and the YPG. The US, on the other hand, openly supports the Syrian Kurds and has backed their advances with airstrikes. Ankara fears that if the YPG are allowed to bridge the territory they control east of the Euphrates with territory they control west of the river, they will effectively establish a proto-state on the border which would embolden the PKK to try something similar in southeast Turkey where some Kurds are already pushing for autonomy.

Syria Op-Ed: The US Has No Plan B to Deal with Russia and Iran’s Plan A - With no more than a smile and a shoeshine, Secretary of State John Kerry seeks to persuade Russia to do the right thing by Syria: to force its client Assad regime to lift sieges on a million helpless civilians; to wind down a Russian Air Force campaign stampeding terrified Syrians in the direction of Turkey; and to support all-Syrian negotiations that can produce a transitional governing body to unify the country against the Islamic State. Perhaps Russian President Vladimir Putin will take pity on Syrians and the United States of America. This is what it will take for Washington’s Syria strategy to work. There is no leverage. There is no Plan B. Instead, there is a fundamental asymmetry that has been in place since the start of the Syrian crisis in 2011. Russia and Iran have wanted Bashar al-Assad politically alive far more than Washington has wanted him dead. This might have been a manageable state of affairs if what was happening in Syria had only stayed in Syria. In the summer of 2011, thinking that Assad was finished, President Barack Obama called on him to leave. In the summer of 2012, thinking that the resilient Assad would never defy him, Obama warned of a chemical red line not to be crossed.  In the summer of 2013 after the red line had been defiantly crossed via a major chemical atrocity, thinking that cruise missile strikes against Assad’s instruments of terror would put him on the slippery slope to invasion and occupation and perhaps alienate Iran, the American President panicked, backed down, and permitted Russia to broker a chemical weapons deal that enabled Assad to double down on mass homicide and make a mockery of a February 2014 Geneva peace conference.

How Far Will The U.S. Go If Turkey Invades Syria? --The Government of Turkey has now put itself in a position whereby it must act rapidly and precipitously to avoid moving to an ultimately losing strategic position in the war against Syria, which could result in being forced back to fight a full-scale civil war to prevent the break-up of the State into at least two components, one being a new Kurdish state. Turkey’s leadership, in insisting - in 2011-12 - on sponsoring a proxy war to overthrow Syrian President Bashar al-Assad, has already led to a refugee crisis of irreversible strategic damage to Europe, but Turkish Presisdent Reçep Tayyip Erdogan, the Saudi Arabian military-political leadership, the U.S. Barack Obama administration, and the Qatari Emir now find themselves with nowhere to go except to escalate further in the hope that the Syrian revival, backed by Russia and Iran, will collapse. Clear indications are emerging in Washington, DC, that the Pentagon is preparing to support a direct military invasion of Syria by Turkish Armed Forces, despite the Munich accord in the week ending February 13, 2016, which was meant to bring about a ceasefire in Syrian fighting. US officials have been actively engaged with those of Turkey and possibly Saudi Arabia in the preparations for ground force attacks on Kurd-ish military formations inside northern Syria, and U.S. Air Force Fairchild A-10 strike aircraft have deployed over northern Syrian territory in early February. The planned intervention by Turkey (and possibly other powers, such as Saudi Arabia) is specifically not aimed at countering the activities of ISIS (asad-Dawlah al-Islamiyah  al-‘Iraq wash-Sham/Islamic State), but solely about countering the growing capability of Syrian- and Iraqi-based Kurdish fighters, and to offset the gains which Syrian Government forces, supported by Russian and Iranian/HizbAllah forces, made in and around Aleppo.  The prospect of yet another abandonment of the Kurds is causing considerable division within some U.S. military and intelligence circles, but the fiction is that the Turkish battle is with ISIS.

Turkey Blames Kurds, Assad For Terrorist Attack, Vows Swift Response - Moments after a massive explosion rocked Ankara on Wednesday, we said the following: “Expect this to be pinned on either ISIS or the PKK. If it's the latter, Ankara will once again claim that the group is working in concert with the YPG and that will be all the evidence Erdogan needs to march across the border.” In short, we wondered whether the bombing - which apparently targeted military barracks - would be just the excuse President Recep Tayyip Erdogan needed to launch an all-out ground invasion in Syria. Turkey has been shelling YPG positions for nearly a week in an effort to keep the group (which Ankara equates with the “terrorist” PKK) from cutting the Azaz corridor - the last lifeline between Turkey and the rebels fighting to oust Bashar al-Assad. It’s unlikely that cross-border fire will ultimately halt the YPG advance and so, Erdogan needs an excuse to send in the ground troops. Sure enough, Ankara has blamed the YPG for the attack and is vowing to retaliate.

Russia's Trap: Luring Sunnis Into War -

  • Washington should think more than twice about allowing Turkey and Saudi Arabia, its Sunni allies, militarily to engage their Shiite enemies in Syria. Allowing Sunni supremacists into a deeper sectarian war is not a rational way to block Russian expansion in the eastern Mediterranean. And it certainly will not serve America's interests.
  • Turkey and Saudi Arabia are too weak militarily to damage Russia's interests. It is a Russian trap -- and precisely what the Russians are hoping their enemies will fall into.

After Russia's increasingly bold military engagement in war-torn Syria in favor of President Bashar al-Assad and the Shiite bloc, the regional Sunni powers -- Turkey and its ally, Saudi Arabia -- have felt nervous and incapable of influencing the civil war in favor of the many Islamist groups fighting Assad's forces.Most recently, the Turks and Saudis, after weeks of negotiations, decided to flex their muscles and join forces to engage a higher-intensity war in the Syrian theater. This is dangerous for the West. It risks provoking further Russian and Iranian involvement in Syria, and sparking a NATO-Russia confrontation.

Russia Demands End To Turkey's Efforts To Undermine Syrian Sovereignty -- Over the past several days, Turkey has been busy putting the world on the course to World War III. The YPG - which Ankara identifies with the “terrorist” PKK- has contributed to the Russian and Iranian effort to cut off the Azaz corridor, the last remaining supply line to the rebels fighting to oust Bashar al-Assad in Syria. The Kurdish effort to unite territory the group holds east of the Euphrates with cities it hold west of the river in Syria has infuriated Ankara, which views the YPG advance as a kind of precursor to Kurdish independence in Turkey. The solution, Turkey says, is a 10 km incursion into Syria, an effort which will establish a “safe zone” for those fleeing the violence that plagues the country’s besieged urban centers. That, of course, is merely an excuse for Ankara to send ground troops into the country, where the Sunni-sponsored effort to overthrow Assad is on its last legs. The deadly bombing in Ankara that claimed the lives of several dozen people on Thursday is predictably being trotted out as an excuse to put Turkish boots on the ground in Syria.

Bilal Erdogan Accused Of Money Laundering In Italy - Bilal is the son of Turkish dictator President Recep Tayyip Erdogan who is on the verge of kicking off World War III by invading Syria in what is sure to be an ill-fated effort to shore up rebel forces and preserve the Azaz corridor, the last remaining supply line for the opposition which is staging what amounts to a last stand at Aleppo.  Erdogan’s family was put under the microscope by the Russian defense ministry in the wake of Ankara’s decision to shoot down a Russian Su-24 on the Syrian border in late November. "What a brilliant family business!," Deputy Minister of Defence Anatoly Antonov remarked, at a press briefing documenting Turkey's connection to Islamic State's illicit oil trafficking operation.  For those who might have missed the backstory, you're encouraged to read the following articles in their entirety:

Put simply, there are any number of reasons to believe that AKP and the Erdogan family are complicit in the sale of illicit crude not only from Massoud Barzani and the Iraqi Kurds, but from Islamic State as well. ISIS oil and Erbil's crude are both technically "undocumented" and considering that "the terrorists" are only producing around 45,000 b/d versus the 630,000 b/d the Iraqi Kurds are churning out, it's easy for Islamic State's product to get "lost" or to disappear as a rounding error, as it were. Some say Bilal Erdogan is directly involved in getting ISIS crude to market via the Turkish port of Ceyhan, where tanker rates mysteriously spike around siginificant oil-related events involving Islamic State.

Start Preparing for the Collapse of the Saudi Kingdom -  For half a century, the Kingdom of Saudi Arabia has been the linchpin of U.S. Mideast policy. A guaranteed supply of oil has bought a guaranteed supply of security. Ignoring autocratic practices and the export of Wahhabi extremism, Washington stubbornly dubs its ally “moderate.” So tight is the trust that U.S. special operators dip into Saudi petrodollars as a counterterrorism slush fund without a second thought. In a sea of chaos, goes the refrain, the kingdom is one state that’s stable.But is it? In fact, Saudi Arabia is no state at all. There are two ways to describe it: as a political enterprise with a clever but ultimately unsustainable business model, or so corrupt as to resemble in its functioning a vertically and horizontally integrated criminal organization. Either way, it can’t last. It’s past time U.S. decision-makers began planning for the collapse of the Saudi kingdom. In recent conversations with military and other government personnel, we were startled at how startled they seemed at this prospect. Here’s the analysis they should be working through. Understood one way, the Saudi king is CEO of a family business that converts oil into payoffs that buy political loyalty. They take two forms: cash handouts or commercial concessions for the increasingly numerous scions of the royal clan, and a modicum of public goods and employment opportunities for commoners. The coercive “stick” is supplied by brutal internal security services lavishly equipped with American equipment.  The U.S. has long counted on the ruling family having bottomless coffers of cash with which to rent loyalty. Even accounting today’s low oil prices, and as Saudi officials step up arms purchases and military adventures in Yemen and elsewhere, Riyadh is hardly running out of funds. Still, expanded oil production in the face of such low prices—until the Feb. 16 announcement of a Saudi-Russian freeze at very high January levels—may reflect an urgent need for revenue as well as other strategic imperatives. Talk of a Saudi Aramco IPO similarly suggests a need for hard currency.  What if the price of loyalty rises?

China again suspends oil price adjustment - China's top economic planner will not adjust domestic retail oil prices as global prices stayed below an official price floor introduced in January, it announced on Monday. Under the current mechanism, prices of refined oil products are adjusted when crude prices translate into a change of more than 50 yuan (over $7.5) per tonne for gasoline and diesel prices for a period of 10 working days. However, the National Development and Reform Commission (NDRC) announced in January that China will not cut its fuel prices when international oil prices fall below $40 a barrel, which immediately triggered a suspension on January 27. The floor aims to buffer the negative effects of price swings, the NDRC said. Global oil prices have experienced sharp changes since the second half of 2014. Brent has dropped to around $33 on Monday, while WTI was only slightly higher than $29. The NDRC is closely watching the operation of the current pricing mechanism and will continue to improve it based on market changes, according to an NDRC notice. Despite the economic slowdown, China remains a major oil importer and consumer, importing nearly 60 percent of what it uses. Its crude oil imports rose 8.8 percent from the previous year to 336 million tonnes in 2015.

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