The Weekly USA Oil & Gas Update: 02nd December 2014

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

OPEC holds production at current level, wants lower prices to slow down US shale boom

Saudi Arabia's oil minister last Thursday told fellow OPEC members that they must combat the growing US crude production from shale by maintaining production and lowering world prices. "The message from OPEC was fairly clear - we are not hurting yet because we are the lowest cost producers," said Iain Armstrong, oil and gas analyst at Brewin Dolphin in London. "It is a question of who blinks first - OPEC or the U.S. shale producers. The longer the oil price stays at these levels the greater chance a U.S. shale producer will go under. But it will take time." As a result, oil prices tumbled on Friday by more than 10%, the biggest one-day drop in five years. Some analysts think there is more downside ahead, with levels bottoming perhaps as low as $60 a barrel. "The market is looking for a new paradigm, a new range to settle into. Where that is, is anybody's guess," said Eugen Weinbert, head of commodities research at Commerzbank in Frankfurt. Article here

First signs of slowdown - October drilling permits drop

In an article from earlier today, Reuters reports that drilling permit activity has fallen across multiple shale plays. In Texas for instance, permits issued dropped from a record 934 down to 885 in October, a level still more than double from the same month in 2010. "This is a pull back from the acceleration. People are being careful," said Allen Gilmer, chief executive officer of DrillingInfo. The permit slowdown was especially prominent in the Eagle Ford, down 22 percent, and the Permian, down 13%. Permits are a leading indicator of investment and activity, and their decreasing number would normally be followed by a decrease in rig count. So, how likely is it that the slowdown will persist? "There is little doubt, in our view, that lower oil and gas prices will result in lower spending and lower shale production in 2015 to 2017," said Wells Fargo analyst Roger Read last Friday. Article here

Unconventional Oil & Gas News

Japan looking to import more condensate from the US

With imports of 300,000 barrels of condensate from US shale plays last month, Japan is looking to lower its dependence on Middle East crude by sourcing from others, such as the US. Japan currently imports 83% of its crude from the Middle East. Korea is even more dependent on the region, importing 87% from the Middle East. Both countries see an opportunity to diversify by importing light crude from US producers, who can overcome export restrictions on crude by processing shale condensate through stabilizers. One such company, Enterprise Products Partners LP is looking to export 600,000 barrels a month to Asian customers next year. Expect more exporting with domestic prices dropping. Article here

Tesoro and Savage Companies propose 360,000 bpd transload terminal for Vancouver, WA

The proposed terminal would take crude oil from shale plays, delivered by rail, and transload to marine vessels. "It is definitely about the biggest terminal that's been proposed," said Sandy Fielden, Director of Energy Analytics for RBN Energy. According to Tesoro spokespersons, the terminal will serve several customers, not just Tesoro. Opponents will resist the development fearing risks of derailment or spills, but Tesoro spokesperson Jennifer Minx said "[w]e're confident we can operate the terminal safely and in an environmentally responsible manner regardless of its size." Article here

Environment and Safety News

Two injured in New Mexico oilfield explosion

An explosion in a tank battery on the Lea/Eddy county line left two workers injured. Both were airlifted from the site of the accident to a Lubbock, Texas hospital. Article here

Mergers and Acquisitions News

Weatherford sells drilling fluids division to Berkshire Hathaway

As part of a plan to re-focus its business in the face of falling oil prices, Weatherford sold its Integrity Industries and Engineered Chemistry businesses for a price between $750 million and $825 million, contingent on the post-transaction performance of the companies. Article Here

American Energy affiliate to target non operating interests

The affiliate has bought non-operated positions in Oklahoma's SCOOP play for about $251 million recently, and company CEO Aubrey McClendon expects a lot more deals for the entity. "Here we can craft custom solutions for anybody who has an asset they want to sell or don't want to sell," McClendon said at a recent conference. He also said the company had about $500 million in capital and could get a lot more. Article here