The Weekly Oil and Gas Update

The Weekly USA Oil & Gas Update: 28th July 2015

Todd Erickson
Contributor: Todd Erickson
Posted: 07/27/2015

The Oil & Gas Weekly is compiled by Todd Erickson. Todd is a veteran executive manager in the North American E&P market.

He has management experience in high-growth oil & gas service organizations performing a leadership role in operations, strategy, and corporate development with a track record of identifying opportunities and best-practices, creating execution plans, then developing effective teams and leaders to execute them.

Learn more about Todd here

Rig Counts - select states with key plays

Select states

This Week

Change from last week

3 months ago

One year ago

Alaska

11

0

11

5

Arkansas

4

0

9

11

California land

11

0

13

45

Colorado

39

0

37

69

Kansas

11

0

12

30

Mississippi

2

-2

4

15

N. Louisiana

25

+2

29

29

New Mexico

51

+1

48

94

North Dakota

69

+1

78

178

Ohio

20

+1

25

43

Oklahoma

107

+2

115

204

Pennsylvania

44

+1

49

53

Texas

374

+8

393

886

Utah

7

0

7

27

West Virginia

18

0

21

27

Wyoming

21

0

23

52

Total US

876

+19

932

1883

Total Canada land

196

+8

78

392

Oil & Gas Prices - Bloomberg/EIA

This Morning

12 weeks ago

1 year ago

Crude Oil - USD/bbl

WTI

48.14

58.92

105.34

Brent

54.62

64.62

105.71

Natural Gas-USD/mmbtu

NYMEX Henry Hub

2.78

2.72

3.84

General News

Glut of deepwater rigs idling at cost of $70,000 a day

An idled rig onshore represents a loss of potential revenue, but deepwater rigs, which cost up to $300 million to build, cost as much as $70,000 every day they idle, parked in the open sea with a team attending them. Of the 190 offshore rigs around the world, 46 are idle, up from 39 just over a year ago. To make things worse, deliveries of 60 new rigs are booked through the end of 2018. "Most contractors have never seen an environment like this, where demand is falling as quickly as it is," said analyst David Smith with Heikkinen Energy Advisors. With prices back under $50, the near future doesn't look bright for offshore drilling contractors. Article here

One oil expert forecasts $100 oil within 5 years

Gary Ross, the founder of consultancy PIRA Energy Group, gained credibility as a market prognosticator when he predicted the 2014 slump. Now he's predicting a return to $100 a barrel crude by 2020 due to falling supplies and increasing demand. "Current prices are unsustainable," he said Monday in an interview. "It's hard not to see oil hitting $100 a barrel at some point in the next five years." This view runs counter to many others, who believe new supply from the US, along with OPEC's willingness to increase production, will keep prices low for some time to come. Ross thinks the Saudis are near their production limit however. "There's not spare capacity to speak of instantly available," Ross said. PIRA forecasts a jump in oil demand of 1.7 million barrels a day this year, which will begin to take up the spare supply and rebalance for higher prices. Article here

Unconventional Oil & Gas News

Utica takes big discount due to lack of takeaway capacity

Ohio's Utica Shale produces natural gas and NGL's at a prolific rate, but getting the hydrocarbons to market is still a challenge. "The problem we have in this entire play is we're still behind on midstream infrastructure and we need pipelines to get the gas out of the regions," said economist Ned Hill. The local market has all the natural gas and NGL's it needs, so Utica producers only get about $1.12, while natural gas at the Henry Hub brings around $2.80. The price for NGL's in the region roughly equals the cost to process them out, so no help here either. "The market on natural gas liquids has now gone from a benefit to a cost. Now, you're selling your product for less than it cost to process, so there's virtually no uplift at the moment," said Ohio Oil and Gas Association vice president Shawn Bennett . "People are focusing their attention on dry gas plays because they don't have to pay for the processing." Relief is near though, with three new pipelines in the works that will provide access to new markets. Several ethane cracker plants are in planning stages as well, which would provide an outlet for the NGL's. These won't come on line until 2017 and beyond though. Industry members are still optimistic though. "The rock is good, the performance of the Utica wells is terrific. I don't think anyone has anything to worry about," said Frank Tsuru, president of Momentum M3 Midstream. "We just need to get some take-away for our products." Article here

Environment and Safety News

As many as 200,000 abandoned wells in PA cause for concern

Drilling has been taking place in the state since 1859; the state did not start permitting wells until 1956. This leaves an estimated 200,000 wells that are orphaned or abandoned. The biggest risk comes from an unknown well shaft's ability to communicate high-pressure fracking fluids in a new well's completion process to other, possibly sensitive, areas. According to Seth Pelepko, chief of the Pennsylvania DEP's division of well plugging and subsurface activities, regulations are being developed that will require companies to check for abandoned wells in the area before drilling. Article here

Mergers and Acquisitions News

Chesapeake cancels dividend and sells assets
The company has been paying an annual common stock dividend, but chose to eliminate next years payment, effective third-quarter 2015, to save $240 million in cash. Additionally, the company just signed an agreement to sell its CHK Cleveland Tonkawa properties to FourPoint Energy for $90 million. The company made the moves to help it get 'cash neutral'. The company still has plenty of liquidity with $2 billion in cash and an undrawn $4 billion credit line. Article here

Todd Erickson
Contributor: Todd Erickson
Posted: 07/27/2015

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