The Weekly USA Oil & Gas Update: 24th February 2015

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

Rig count reaches 5-year low

The Baker Hughes rig count reached its lowest point since January 22, 2010 this week when it hit 1,310. According to an analysis released by Wood Mackenzie this week, we have not seen the bottom yet. The report says to expect a loss of another 300 rigs, leveling off at 1,000 units by August. If crude oil prices remain in the $40/$50 range, that number could drop to 900 units, which would represent half of the total rig count just last November. Woodmac expects things to turn around in 2016, with crude prices rising to an average of $64 per barrel, and rigs coming back at a rate of approximately 15 per month in 2016. Article here

Marathon announces a second cut to capex after losing money in Q4

Last year, Marathon spent $5.9 billion, but will only spend $3.5 billion in 2015, which is down 20% from the guidance it issued in December. "This budget reflects an emphasis on investment selectivity, balance sheet flexibility and positioning for price recovery," said Marathon Oil President and CEO Lee Tillman. More directly, this means that Marathon will focus its capital where it can expect the highest returns, which means the Eagle Ford and the Bakken, where it will maintain a fairly robust drilling program. Article here

Unconventional Oil & Gas News

Inventory of drilled but not yet completed wells piling up

A number of the leading shale producers have announced that they will delay completion of many wells already drilled, including EOG, Anadarko an Continental, and the backlog is becoming significant. In North Dakota, the state's Department of Mineral Resources estimates there are 750 wells drilled but not yet completed. Once completed, they would increase the state's total number of producing wells by 8%. Other plays have similar numbers. Why wait to complete? "It's a much more prudent business decision to wait. It will give us better capital returns if we do that," according to EOG's CEO. First, completions represent a significant part of a well's total cost, so delaying this activity saves lots of cash. Additionally, about a third of a shale well's total production comes in the first year; many producers prefer to wait for higher commodity prices before turning on the tap of this finite resource. Keep this in mind as you track the changes in rig counts, which only tell part of the story. Article here

Environment and Safety News

Two Bakken crude trains derail and burn

Two dozen oil cars derailed 30 miles out of Charleston, West Virginia and touched off a fireball sending flames hundreds of feet into the sky. The fire burned one house, but no injuries were reported. Article here Canada also had a derailment and fire, as a 100-car train derailed near Timmins, Ontario carrying Bakken crude. Seven of those cars carrying crude burned and the fire prompted CNR to close its main rail line. Article here These newest fires are sure to stoke the conversation around the transporting of Bakken crude by rail, and the associated risk.

Mergers and Acquisitions News

Warren Buffet bails out of ExxonMobil

Buffet's Berkshire Hathaway sold its entire $3.7 billion stake in ExxonMobil last week and also recently sold its position in ConocoPhillips. He's not out of the oil business entirely though, adding to his holdings in Suncor and Phillips 66. "There was clearly no edict that says, 'Oil is terrible, let's get out,'" said Jeff Matthews, a shareholder and book author about the company. Article here