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Oil and Gas Roundup — March 24

March 24, 2016
TOPICS: In the news
U.S. shale gas output increasing

U.S. natural gas production is on the rise, with some reserve areas in the country's Northeast getting more output from fewer wells, an industry report found.

"The natural gas production record achieved in February is largely attributed to the Northeast, which also is still helping offset the declines seen in other major U.S. basins," Sami Yahya, a Platts Bentek energy analyst, said in an emailed statement.

Platts Bentek, a forecasting unity for energy reporting service Platts, reported February natural gas production in the Lower 48 U.S. states was 73.3 billion cubic feet per day, up nearly 2 percent from January.

According to its estimates, the February gas output level is the highest since it started keeping records in 2005.

The increase in production comes as most energy companies are scaling back on investments in the upstream sector in response to lower crude oil prices. Rig counts, which serve as a barometer for the health of the industry, have been in steady decline.

Read more at UPI.

EIA: Half of U.S. Lower 48 oil production comes from 2-year-old wells

Nearly half of the oil pumped in the Lower 48 states last year flowed from wells that were drilled sometime after the start of 2014, the Energy Information Administration said Tuesday, showing the reach of short-cycle shale production and technological advances in the U.S. oil industry.

That’s part of the reason the EIA expects average U.S. production this year to come down 7.4 percent, or roughly 700,000 barrels a day. The nation’s shale oil production has comes on rapidly over the past few years but individual wells have steep decline rates, losing some 70 percent of the initial production in the first year.

“Constant drilling and development of new wells is necessary to maintain or increase production levels,” the EIA said. “Oil production from new wells has so far been able to keep U.S. crude production from falling significantly below its level in late 2014.”

But with the U.S. oil rig count down 76 percent since the fall of 2014, all that is over, unless capital spending picks up this year in response to the recent rise in oil prices. The agency said it expects U.S. oil production to keep falling in 2017, ending up 1.2 million barrels a day lower than the 2015 average at 8.2 million barrels a day.

The portion of U.S. onshore production coming from new wells – those wells that were drilled within a two-year period – shot up to 48 percent last year from 22 percent in 2007, the EIA said.

— FuelFix

Gas pipe safety rule expands regulatory reach without riling industry

The federal pipeline safety regulator's newly proposed gas transmission and gathering rule would require operators to be more vigilant over lines that previously had lighter regulatory treatment, but the rule did not spark initial outcry from the sector.

Industry representatives noted that operators have been pursuing safety initiatives in anticipation of the regulations' release and said they were glad the rule had finally been published after several years in the making.

The American Gas Association welcomed the proposal, noting that it had been working with the U.S. Pipeline and Hazardous Materials Safety Administration over the past years as the agency developed the regulations.

"We appreciate PHMSA's efforts and look forward to continuing to work with them to help ensure that the final rule is technically-based, reasonable and cost-effective. We will take the time to analyze the proposed changes and work with our members to evaluate the rule's impact and the estimated costs for implementation," AGA CEO and President Dave McCurdy said in a March 17 statement.

The Interstate Natural Gas Association of America hailed the long-awaited release of the proposed rulemaking notice. Donald Santa, the group's president and CEO, said in a March 17 statement that the association was still reviewing the rule but planned to focus on whether the regulations would be consistent with the voluntary pipeline safety program members undertook in 2012. Both the interstate group and the American Petroleum Institute underscored their industry's pursuit of zero pipeline incidents.

Read more at SNL Financial.

Schlumberger chief: Oil services crisis isn’t just oil prices

The oil service industry needs a fundamental shift in the way it approaches working with exploration and production companies if it’s to thrive again, the CEO of Schlumberger warned Monday.

Both services companies and their clients are being held back by an outdated business model that has disconnected service companies from their producer, stifled technological innovation and done little to hold down costs, said Paal Kibsgaard, who holds the top job at Schlumberger.

“Our industry has simply not progressed sufficiently in terms of total system performance to enable cost-effective development of increasingly complex hydrocarbon resources,” Kibsgaard said. Kibsgaard spoke at the Scotia Howard Weil conference in New Orleans, and a transcript was provided to

As an example, Kibsgaard pointed to an explosion in exploration and production funding — money invested in drilling quadrupled over the past decade — that only boosted global oil production by 15 percent.

The problem has been somewhat obscured by low oil prices and a sector-wide retreat from drilling, Kibsgaard said. But much of the savings that oil producers are seeing are due to increased competition rather than a fundamental change to drilling, he said, and they’re likely to be temporary.

Read more at FuelFix.

Feds defend fracking rule against judicial hold

The Obama administration is fighting in federal court to defend its hydraulic fracturing (fracking) rule, saying a lower court committed a “legal error” when it put the regulation on hold.

Lawyers representing the Interior Department’s Bureau of Land Management (BLM) are asking the Court of Appeals for the 10th Circuit in Denver to overturn a Wyoming-based court’s decision last year to halt the rule and allow regulators to enforce it.

That judicial injunction stemmed from the arguments from various states and the oil and natural gas industry that Congress has expressly prohibited the federal government from regulating fracking, even on federal and American Indian land, as the BLM did early last year.

“The district court held that Congress has ‘directly spoken to the issue and precluded federal agency authority to regulate hydraulic fracturing not involving the use of diesel fuels.’ That was legal error,” lawyers wrote late Monday in their opening brief in their appeal of the injunction.

“Congress has never directly spoken to BLM’s authority to regulate hydraulic fracturing on federal and Indian lands,” they said. “Congress instead delegated BLM broad authority to regulate all oil and gas operations on federal and Indian lands. Congress has not carved hydraulic fracturing out of that express delegation of authority.”

Read more at The Hill.

Report: Mexico to hold auction for access to shale south of US border

After cancelling plans in 2015 due to weak commodity prices, Mexico has decided to push through with the private bidding round for its shale oil and gas fields within 2016, Bloomberg News reported March 17.

The auction would cater to U.S. drillers interested in expanding south of the U.S. border, most of which are "mostly independent companies that have been very successful in shale development," said Lourdes Melgar, Mexico's deputy energy minister, at the Foreign Affairs Mexico Energy Future Conference in New York.

The Mexican government is also planning to execute a bidding round for 10 deepwater areas in the Gulf of Mexico, which is scheduled for Dec. 5, Bloomberg said in the report.

Meanwhile, Mexico is developing regulation that would establish best practices and sustainability with regards to hydraulic fracturing, as well as determine the areas with local support, infrastructure and economics to accommodate shale development. Approval is expected in the coming months, according to the Bloomberg report.

"With the fall in oil prices some of these areas aren't as competitive right now, so we are taking advantage of the time we have right now to develop the regulation," Melgar said in the report.

— SNL Financial
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