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Oil and Gas Roundup — June 19

June 19, 2017
TOPICS: In the news
A roundup of oil and natural gas industry news from around the state, nation and world:

State rig count falls as U.S. count continues climb

Oklahoma’s rig count dipped by four to 127 for the week ending June 16, even as the number of rigs exploring for oil and natural gas nationwide climbed by six to 933.

A year ago, there were 424 rigs in operation in the United States and 58 in Oklahoma. Of the current national total, 747 rigs were exploring for oil and 186 for natural gas.

Of the other major oil- and gas- producing states, Texas was flat at 460, Louisiana gained one rig to 65, New Mexico was up two to 61, North Dakota put on three rigs to 49, Colorado added two to 36 and Pennsylvania and Ohio were unchanged at 34 and 27, respectively.

The Permian basin was still the nation’s most active play, with 368 rigs, followed by the Eagle Ford at 84 and the Cana Woodford, home of Oklahoma’s SCOOP and STACK, at 59.

OPEC, U.S. shale drillers on collision course, analyst says

The oil market is on an unsustainable course with output from U.S. shale and other non-OPEC sources increasing rapidly, while OPEC and its allies trim production to reduce inventories and prop up prices.

The International Energy Agency (IEA) projects non-OPEC output will increase by 1.5 million barrels per day (bpd) in 2018 (“Oil Market Report”, IEA, June 2017).

If that proves correct, non-OPEC suppliers will capture all the increase in demand next year, because the IEA predicts consumption will increase by only 1.4 million bpd.

In effect, OPEC will be restricting its own output only to see rival producers step in to meet growing demand from refiners.
OPEC will face the familiar dilemma of whether to defend oil prices by continuing to restrict output or defend market share by growing production again.

OPEC and its non-OPEC allies are unlikely to remain impassive as U.S. shale producers and other non-OPEC countries not bound by the production agreement capture all the growth in market demand in 2018.

If U.S. shale production continues to grow rapidly, OPEC will probably return to defending its market share in 2018, even if it means accepting lower oil prices.

Read more at Reuters.

Where America gets its electricity

The way the U.S. generates electricity has changed a lot over the past decade.

The attached chart ran with a column on the electrical utility industry's seeming conviction that its reliance on natural gas and renewables is just going to keep growing, regardless of the Donald Trump administration's efforts to engineer a coal resurgence.

The chart only included the top five sources of electrical power in the U.S. 1 Perhaps surprisingly, solar power doesn't make the cut. Even when you include the Energy Information Administration's estimate of the power generated by rooftop panels and other small-scale solar, it's still in seventh place behind biomass (burning wood, mainly).

Solar is gaining fast, though, and in a few places, it has already arrived. In sunny, renewables-obsessed California, for example, solar recently nosed out nuclear for third place among large-scale electricity sources.

With the estimated contribution of small-scale solar added in, the sun is now California's No. 2 source of electricity. Coal has not been a significant part of the state's electricity-generating mix for a long, long time, although that's somewhat misleading given that California imports coal-generated power from its neighbors. The state is heavily reliant on natural gas generation, but its natural gas use has been declining lately thanks in part to the growth in solar and wind and in part to a very wet winter that's been great for hydropower generation.

Also, geothermal energy has long been a major source of electricity in California, and was only passed by solar and wind in 2015.
California's energy mix, and the changes in it in recent years, is very different from those of the nation as a whole. Now, we all know California can be weird. But it turns out that most states' electricity-generation charts don't look much like the national one.

Read more at Bloomberg.

U.S. export boom suggests domestic surplus is moving overseas

One reason for the bearish narrative gripping the oil market of late has been that draws in US crude stocks have essentially come at the expense of the rest of the world.

U.S. crude exports have surged this year -- averaging more than 1 million b/d in April, the second most on record -- driven by the significant discount of US crude prices relative to global benchmarks.

The weakness of ICE Brent's term structure compared with NYMEX crude can be seen as a symptom of the glut that has been exported out of the US to the rest of the world that, in turn, has weighed on the oil complex.

The recent plunge in oil prices that began May 25 saw crude futures drop roughly $7/b through last week, while the contango widened across time maturities for ICE Brent and NYMEX crude.

Moreover, the contango for ICE Brent has now become wider than that of NYMEX crude, which for later-dated contracts had not been the case since late November when OPEC announced a deal to cut supplies starting January 1.

ICE Brent's front-month/12th-month spread averaged minus $1.84/b last week, which was 35 cents wider than the same spread for NYMEX crude.

Read more at Platt’s.

Mexico's energy reform kicks into high gear

Mexico turns a corner today in its effort to attract multinational companies to oil and gas opportunities south of the border.

The federal National Hydrocarbons Commission (CNH) is launching the second round of bidding for oil and gas contracts in the Gulf of Mexico's shallow waters.

The Mexican government expects a surge in shallow-water drilling activity after a tough initial round of bids, even as interest in shallow-water exploration in the United States remains moribund. CNH's first round ended with two drilling contracts being awarded amid concern about low oil prices.

This time around 36 entities are participating, 16 of which are consortiums of companies. Fifteen blocks are being put on offer. And the roster of bidders is becoming more diversified.

By spring of this year it was evident that turnout for today's round would be strong.

"It's the first time ConocoPhillips is bidding in Mexico," said CNH President Juan Carlos Zepeda. "All of the rest of the majors were bidding in deepwater in December, but the missing one was ConocoPhillips."

Plenty of others will be vying for drilling rights as interest in Mexico's energy potential increases. Companies from the United States, United Kingdom, China, India, Japan, Italy, France, Russia, Malaysia, Colombia, Germany, Spain and Argentina are slated to participate, competing for the 15 shallow-water blocks that likely hold large volumes of economically recoverable crude oil, given the similar geology as seen in the shallow-water U.S. Gulf of Mexico.

Zepeda said in a phone interview with E&E News that the government of Mexico is learning how to attract more global investors, and it's showing up in stronger anticipated offshore lease rounds.

Despite the dismal participation in Mexico's first offshore lease round in December 2016, it was still largely viewed as a success.

Read more at E&E News (subscription required).
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