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Oil and Gas Roundup — April 11

April 11, 2016
TOPICS: In the news
A roundup of oil and natural gas industry news from around the state, nation and world:

Oklahoma drilling rig count increases to 63

The number of rigs drilling for oil and natural gas in Oklahoma increased this week for the first time in nearly three months, Baker Hughes said Friday.

The state now supports 63 active drilling rigs, which is still down 71 percent from 214 active rigs on Nov. 26, 2014.

Nationwide, the rig count fell for the 16th consecutive week, dropping by 7 to 443, a new record low according to numbers Baker Hughes has published since 1968. The number of rigs searching for oil slipped by 8 this week to 354, while producers added one natural gas rig, boosting that count to 89.

Oil and natural gas companies have mothballed 255 rigs this year, pushing the count down 77 percent from 1,929 on Nov. 21, 2014. The U.S. count peaked at 4,530 in 1981.

Oil prices surged Friday after Federal Reserve Chair Janet Yellen downplayed recession fears and as speculation increased that the world's top oil producers might agree to a production freeze at a meeting scheduled for April 17.

Domestic benchmark West Texas Intermediate crude jumped $2.46, or 6.6 percent, to $39.72 a barrel Friday. While still well below year-ago levels and prices that would allow most oil companies to be profitable, the oil price is up 52 percent from the recent low of $26.05 in February.

Read more energy news from The Oklahoman.

There's a 'strong case' for $120 oil in 2018

Today, I’m going to try and tackle the reasoning for my ‘wild’ predictions for oil reaching triple digits by the end of 2017. While I am nearly alone in these forecasts, they are not just pulled out of space, but with deep regard for the fundamental supply/demand picture that everyone mostly agrees upon, combined with what I think is a deeper insight into the likely trajectory of oil company leverage, financing and the role of financial oil derivatives.

Despite the technical nature of this discussion, I think I can make a strong case for $120 oil in 2018 using only two charts of my own making – one charting global demand, which is more universally agreed upon, and then an overlay of global production, which is more open to prediction.

First, demand: Almost all analysts including the EIA and IEA agree that demand continues to grow at a steady pace throughout the rest of the decade, and even a minor economic downturn will only slow the pace of growth (green line), but not upend the upward trend line of demand.

Sorry to those environmentalists who pray for an end to carbon use growth in the next decade – virtually no one currently believes it will happen.

Read more at Business Insider.

Wrong policies could hamstring US gas development, forum told

Poorly conceived policies could restrict development of abundant domestic natural gas resources and deny the U.S. energy security, economic, and geopolitical opportunities, several speakers at an Apr. 6 Hudson Institute forum warned.

“This administration has issued a slew of regulations intended to stifle gas use,” maintained former US Sen. George Allen (R-Va.) who now leads George Allen Strategies in Washington. “The removal of the Mid-Atlantic lease sale from the 2017-22 Outer Continental Shelf plan it is preparing is simply the latest example of keeping it in the ground, as environmental organizations like to say.”

More pipelines also are essential to get new gas production to markets, he continued. “In Virginia, there’s opposition to the Atlantic Coast Pipeline which would bring gas from the Utica and Marcellus shales to consumers,” Allen said.

“State, local, and federal governments could get billions of dollars in new revenue from more gas production without having to raise any taxes,” he asserted. “The only thing that’s missing is the political will to access these resources.”

The U.S. could be saving 3 million b/d of crude today if it had adopted  US Senate legislation proposed 5 years ago which would have provided a pathway for heavy-duty trucks to start running on gas instead of diesel fuel, oilman and investor T. Boone Pickens said in luncheon remarks. “Gas hasn’t captured the public’s imagination as a transportation fuel,” he observed. “More people need to buy into it. I guess I haven’t been a very good salesman.”

Even with depressed crude oil prices, gas still would cost less than gasoline or diesel fuel and not have as great an adverse environmental impact, Pickens said. “Cummins has just come out with a 9-liter natural gas engine that has 90% fewer [nitrogen oxide] emissions and is cleaner than the grid,” he asserted. He was less certain when an audience member asked about potential methane impacts and said he would need to study the matter further.

Read more at Oil & Gas Journal.

Oil, gas drilling costs down as much as 30% from 2012, EIA says

Upstream operators in five major oil and gas plays have been able to slice 25% to 30% from their costs since 2012, the U.S. Energy Information Administration reported.

Working in conjunction with IHS Global Inc., the EIA studied the costs per well in the Eagle Ford, Bakken and Marcellus Shales and two plays in the Permian Basin. The findings of the study indicated that improved technology has allowed for more efficient drilling and completion, which has in turn reduced costs.

"Upstream costs in 2015 were 25% to 30% below their 2012 levels, when per-well costs were at their highest point over the past decade," the EIA said. The study showed that for the Permian's Midland Basin and the Marcellus, the cost to drill per foot of depth exceeded $200 in 2012 and drilling in the Eagle Ford exceeded $175 per foot. By 2015, all five plays were below $150 per foot, a level the EIA and IHS believe will be maintained through at least 2018.

In 2012, when the cost per well in all five plays averaged $8 million or more, the cost per lateral foot exceeded $800 in the Midland Basin, Eagle Ford and Marcellus. By 2015, the cost per lateral foot for all five plays was down to $600, with the Bakken as low as $400 per foot.
The agency said the decline in cost continued in 2015, but at a slower rate as producers began to experiment with deeper wells with longer laterals.

"[The changes] affected the onshore oil plays differently in 2015, with recent per-well costs ranging from 7% to 22% below 2014 levels," the EIA said.

The EIA found that differences in geology, well depth and water disposal options could cause the prices in each play to vary, but improvements in drilling and well completion were seen across the board.

"Greater standardization of these drilling and completion practices and designs across the industry should continue to lower costs," the agency said. "The drilling cost per foot, based on total depth, and the completion cost per foot, based on lateral length, are both projected to maintain these lower cost trends through 2018. Sustained lower upstream costs may affect near-term oil and natural gas markets, and ultimately, the prices of these fuels."

— SNL Financial
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