The Weekly USA Oil & Gas Update: 22nd June 2015

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

Saudi Arabia looking to increase crude production to record levels

Both Citigroup and Goldman Sachs say they expect the Saudis to increase production from current levels of 10.3 million barrels per day, already a 30-year high, to as much as 11 million barrels per day. "If you are Saudi Arabia you're looking at the new oil order we live in, you would to to full capacity," said Goldman's Jeff Currie. US shale oil producers have displaced the Saudis as the new swing producers, and are likely to keep the price of oil in check around current levels. This gives Saudi Arabia an incentive to pump all it can, says Citigroup's Seth Kleinman. The lower outlook for prices "turns oil in the ground in Saudi from an appreciating resource into a depreciating resource," and "if it's depreciating, you produce it all as fast as you can." Article here

Unconventional Oil & Gas News

Shell takes another step to building proposed cracker by buying land

The Marcellus and Utica produce large amounts of ethane, a basic feedstock for ethylene, used to make plastics. The Utica and Marcellus produce large amounts of ethane, but with little local market given there is no local processing to turn ethane into ethylene. Shell has talked about building a cracker plant in Pennsylvania to process ethane to ethylene since 2012, and last week it took another step in that direction by purchasing land northwest of Pittsburgh it has been considering for the facility site. "This announcement marks another important milestone in the progress toward Shell's final investment decision to construct a world-class petrochemical facility on this site," said Dennis Yablonsky, CEO of the Allegheny Conference on Community Development. The plant would provide both a local market for ethane, as well as a source for regional manufacturers for ethylene. Article here

Kinder Morgan proposes 430,00 bpd NGL pipeline from Ohio to Gulf

The 1,100-mile pipeline would take natural gas liquids from the Marcellus and Utica shale down to Gulf coast plants. The project involves re-purposing 964 miles of existing pipeline, with construction o 202 miles of new 20-inch pipeine. Kinder Morgan's open season began last week. Article here

Environment and Safety News

Oklahoma's earthquakes linked to produced water injections

Stanford geophysicist Mark Zoback published a study last Friday that shows the primary source for quake-triggering water injections in Oklahoma is produced water, not flowback water from fracking operations as had been thought. Before 2008, the state experienced one or two magnitude 4 earthquakes per decade, but in 2014 alone, the state had 24 such events, largely driven by the increasing amount of water injections, according to the study. Article here

Mergers and Acquisitions News

Expert believes between 5 and 13 public E&P companies with revenue exceeding $100 million will bankrupt by year-end
Kim Brady, a partner at PE firm SOLIC Capital made the prediction, expecting another 3 to 7 bankruptcies next year. Brady based this on his belief that prices would continue to drop. "Clearly, we see demand increasing," he said. "there's no question about that. But production has been keeping up, and it's growing faster than demand." September's financial reporting could be the trigger for those teetering on the edge. David Bianco, chief US equity strategist with Deutsche Bank also believes lower prices will be with us for a while. "I think what you're seeing in energy is not a mere cyclical adjustment. It's a big, structural adjustment . . . [t]he whole space has to get accustomed to a lower level of profitability." Not everyone agrees that a wave of bankruptcies is coming. TPH's Michael Rowe said he doesn't expect an imminent shake-up to come, believing that banks will be flexible helping to get E&P companies' houses in order. "The last thing a bank wants to do, honestly, is have their E&P companies that are borrowing from them default," he said. Article here