O&G Members Banner

The Weekly Oil and Gas Update

The Weekly USA Oil & Gas Update: 5th January 2015

Contributor: Todd Erickson
Posted: 01/05/2015

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

10

-1

11

11

Arkansas

12

0

12

11

California onshore

26

-17

43

32

Colorado

69

+1

77

65

Kansas

29

-1

25

29

Mississippi

14

0

14

7

N. Louisiana

28

0

30

25

New Mexico

102

-1

101

79

North Dakota

169

-3

189

174

Ohio

47

+2

42

35

Oklahoma

209

+4

213

169

Pennsylvania

54

-1

57

56

Texas

852

-16

897

832

Utah

23

0

23

23

West Virginia

28

-3

27

32

Wyoming

57

-1

60

53

Total US

1840

-35

1931

1751

Total Canada land

253

-136

427

281

Oil & Gas Prices - Bloomberg/EIA

This Morning

12 weeks ago

1 year ago

Crude Oil - USD/bbl

WTI

51.10

85.73

93.12

Brent

54.64

87.82

106.71

Natural Gas-USD/mmbtu

NYMEX Henry Hub

3.14

3.87

4.50

General News

US LNG export projects threatened by falling oil prices

Low prices for US natural gas relative to world prices brought about a scramble to permit and build Liquefied Natural Gas (LNG) exporting terminals in recent years. With historic natural gas spot prices as high as $16 per mmbtu, compared to $4 per mmbtu domestically, the market looked poised to explode, exporting cheap US produced natural gas to Asian customers hungry for cheap natural gas from 14 permitted export terminals. The collapse in oil prices has changed that world pricing dynamic though. Competitive exports from Qatar and Australia are priced relative to oil, which has dropped about 50% since most of these US LNG export projects were conceived. Consequently, the US projects have been unable to lock in buyers, having lost their price advantage. As a result, the first US LNG export project has been cancelled, the Excelerate Energy's Texan LNG terminal. More cancellations may be coming. "The oil price plunge makes U.S. LNG with prices linked to Henry Hub potentially uncompetitive with LNG from other sources, especially those using an oil price linkage," independent consultant Andy Flower said. Article here

Linn Energy cuts 2015 capital budget in half

The company, which focuses primarily on producing from mature oil and gas fields, reduced its capital spending for this year to a point it can fund through internally generated cash. The company, organized as a MLP, has also reduced its dividend by more than half. Article here Continental Resources also made major cuts on their capital budget several weeks ago, going from a planned $4.6 billion down to $2.7 billion for the year. The company does not have any of its production hedged, making it especially sensitive to falling commodity prices. Article here

Not everyone cutting budgets - Southwestern increases 2015 capex

The company owns extensive acreage in the Marcellus, from which it produces natural gas. Although down over the last 3 months, natural gas prices have not fallen nearly as much as crude oil prices, and Southwestern's acreage in the Marcellus is among the US's cheapest to produce. According to CEO Steven Mueller, Southwestern can turn a big profit at $3.75 per mmbtu, which may be in the cards in 2015. Based on these economics, the company has raised its 2015 capex budget to $2.6 billion, up from $2.4 billion last year. Article here

Unconventional Oil & Gas News

US government to allow exporting of stabilized condensate

Last week, the US government published guidelines allowing export of the ultra-light crude known as condensate, if run through a distillation tower. Several companies have been doing this already for several months under specific letter rulings from the government, but last week's publication opens the door to numerous others. Condensate is especially prevalent in the Eagle Ford Shale play, which also has convenient exporting options, prompting analysts to predict that by the end of 2015 condensate exports from the US could rise as high as 1 million barrels per day. The new twist in demand for shale-derived crude could really provide a boost in a falling price market. "U.S. producers are under the gun to reduce capital expenditures given lower prices," Citigroup said in a recent report. "Now an export route provides a new lease on life that can further weaken crude oil markets and throw a monkey wrench into recent Saudi plans to cripple U.S. production." Article here

Environment and Safety News

USFS to allow drilling in, but not on, Colorado's Pawnee National Grassland

The ruling allows producers to drill horizontally into the Pawnee National Grassland in Colorado's Weld County from adjacent parcels, but does not allow any surface occupancy. this is a complex, but somewhat viable option given that the Grassland consists of a patchwork of federal and private lands. The area holds up to 590 million barrels of oil, according to filed statements. Article here

Mergers and Acquisitions News

Analysts expect a rush of asset sales as a result of commodity price declines

Many of the players in the unconventional oil & gas boom borrowed their way into the game. Now with falling commodity prices and dramatically decreased cash flow, many are scrambling to sell assets to shore-up weak balance sheets. "With the collapse in oil prices, you're going to see a bunch of asset sales from sub-investment-grade guys who have to sell. Then it's like elephants through the keyhole because everyone is trying to sell," said analyst Phil Adams. But asking prices have not yet dropped to a place where buyers are willing to purchase it seems. Ken Olive with Oil & Gas Asset Clearing House said that the number of deals has plummeted since November due to the gap in expectations between buyers and sellers as prices declined. "It was interesting because in November, when oil prices had dropped roughly to $75, the market was still robust," Olive said. "Sellers had adjusted mentally to the fact they were going to have to adjust their expectations on what they could sell their assets for. But once they came down to $60, we found that was a much harder leap for sellers to make and be willing to come off their price." If prices stay low, heavily leverage companies will have no choice but to sell assets at whatever the market will bear, and it could become a bloodbath. "There are a lot of people who borrowed a lot of money based on higher price levels, and they're going to need more capital," Blackstone CEO Stephen Schwarzman said during a conference earlier this month. "There's going to be a fallout. It's going to be one of the best opportunities we've had in many, many years." Article here

Contributor: Todd Erickson