Dumping Billions In Canadian Assets For Premian Basin

Permian Basin Assets Replaced Canadian Assets

Introduction…Marathon Oil (NYSE: MRO) is selling its Canadian subsidiary, including the company’s 20 percent non-operated interest in the Athabasca Oil Sands Project, to Royal Dutch Shell PLC and Canadian Natural Resources Ltd. for around $2.5 billion in cash, according to a March 9 release.

Additionally, Marathon scooped up 70,000 acres in the Permian Basin from Midland, Texas-based BC Operating Inc. in a deal worth about $1.1 billion, per the release. That includes about 51,500 acres in the Northern Delaware Basin portion of the Permian.

According to the Wall Street Journal, Shell announced it’s selling all of its Canadian oil-sands projects for around $7.25 billion. Shell will keep a 10 percent interest in Athabasca with Canadian Natural (NYSE: CNQ). Meanwhile, Irving, Texas-based rival Exxon Mobil Corp. (NYSE: XOM) recently said production wasn’t profitable in the region and removed around 3.3 billion barrels of oil from its stated reserves, much of which was attributed to the oil sands, the WSJ reports.

In conclusion... Canadian oil sands are falling out of favor with majors due to its high production costs.  On the other hand, Permian Basin oil and gas production is highly favored due to its relatively low production cost and its well established iinfrastructure .

Permian Basin is also favored by our partners who are purchasing saltwater disposal wells due to increased production of water from the new oil production.

Oil Shortage, Price Spike Predicted

Oil Price Spike Predicted

Introduction — Rising Canadian and U.S. production will not be enough to make up for tepid global investment, leading to a supply shortage in oil markets in a few years, a International Energy Admisitration report published last Monday said.

In its annual five-year forecast released in Houston Monday, energy watchdog Paris-based International Energy Agency said “it is far from clear that enough projects will enter the pipeline in the next few years to avoid a potentially tight market by 2020 and with it, the possibility of a price spike.”

The report comes as major oil and gas producers continue to slash their exploration budgets amid lower oil prices. Years of sharply growing oil supply have put the market into a state of oversupply in recent years, depressing prices. That led to widespread retrenchment on the part of debt-laden major oil producers. Late in 2016, OPEC and its non-OPEC allies agreed to curb supplies in an attempt to put oil markets closer into balance.

In Summary…$25 trillion investment in new oil-producing capacity over the next 25 years needed to meet the growing demand as reported here in this newsletter.

Source: “IEA predicts oil supply shortage and price spike within three years,” Financial Post, Jesse Snyder, 6 Mar 2017; “$25 Trillion Investment Needed, Oil And Gas Insider, Bill Moist, 22 Jan 2017

Why Major Oil Company Goes Big On US Shale

 Apache Oil Co. Drilling Near Davis Mountains

Introduction…A major oil company does big on US shale drilling.  Here’s why.

Exxon goes big on U.S. shale. New ExxonMobil (NYSE: XOM) CEO Darren Woods gave his first presentation to investors this week, where he outlined a strategy to step up investment in U.S. shale.

Exxon will allocate a quarter of its 2017 budget to short-cycle shale projects. The move will help the oil major navigate an uncertain market, as cash can be returned to the company much quicker from shale drilling than it can from the major offshore projects that Exxon has long been accustomed to.

Still, Exxon will move forward aggressively on its large offshore discovery in Guyana, hoping to bring it online in the next few years.

Conclusion…It’s quicker positive cash flow that brings ExxonMobil to shale oil production.  Even a company this big wants a quicker return on its capital expenditures.

Oil Sold Out Of Asia Tanker Storage As Market Tightens

Oil Tankers Stationed Eastern Coast Of Singapore 

Introduction…Traders are selling oil held in tankers anchored off Malaysia, Singapore and Indonesia in a sign that the production cut led by OPEC is starting to have the desired effect of drawing down bloated inventories.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers outside the group, including Russia, announced late last year that they would cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017, looking to drain a glut that pulled down prices from over $100 per barrel in 2014 to around $56.50 currently LCOc1.

“OPEC’s strategy is targeting inventories – given the scale of the overhang, the market won’t rebalance in six months – we expect an extension into (the second half of 2017),” said Energy Aspects analyst Virendra Chauhan.

As OPEC’s cuts start to leave some demand unmet, a hefty 6.8 million barrels of crude has been taken out of tanker storage from Linggi, off Malaysia’s west coast, in February, shipping data in Thomson Reuters Eikon shows.

An additional 4.1 million barrels and another 1.2 million barrels have been taken out of storage on tankers in Singaporean and Indonesian waters, the data shows

In the short-term, the flood of crude from floating storage will add to supplies coming into Asia from as far away as the Americas and Europe.

In the longer-term, however, clearing oil out of inventories like tankers is part of OPEC’s goal to rebalance markets.

In conclusion…”Inventories will continue to decline driven by the combination of production cuts and the strong demand growth,” U.S. bank Goldman Sachs said this week in a note to clients, adding that it expected Brent prices to rise slightly in the second quarter, to $59 per barrel.

Source: Mark Tay | Singapore, “Oil sold out of tanker storage in Asia as merkt slowly tightens,” Retuers Commodities, 23 Feb 2017

Texas Fifth Straight Double-Digit Jump

The boom continues in The Permian Basin

Introduction: The US drilling rig count rose by double digits for the fifth consecutive week during the week ended Feb. 17.

Data from Baker Hughes Inc. shows the tally of active rigs gained 10 units to 751, an increase of 347 units since a modern era nadir of 404 touched last May 27 (OGJ Online, Feb. 10, 2017). In the last 2 months alone, the count has risen by 114 units.

Onshore rigs climbed by 13 to 730, with horizontal units up 7 to 614 and directional units up 6 to 72. The horizontal count has expanded by 300 since May 27.

The US offshore count dropped 3 units to 18 as it approaches lows not seen since the aftermath of the Macondo deepwater well blowout and crude oil spill. Three rigs remain drilling in inland waters.

Given the Permian’s overall increased drilling activity, the US Energy Information Administration forecasts Permian oil production to rise 70,000 b/d month-over-month in March to 2.25 million b/d (OGJ Online, Feb. 13, 2017). As of January, the basin boasted a suite of 1,757 drilled but uncompleted (DUC) wells, an increase of 84 from the December total.

EIA projects the Eagle Ford to record a 14,000-b/d month-over-month increase in March to 1.077 million b/d, marking the South Texas region’s first rise in Drilling Productivity Report data since late 2015. Its tally of DUC wells during January gained 11 month-over-month to 1,255.

In summary for Texas:  Texas is the only oil- and gas-producing state to record an increase with the exception Utah during the week, rising 1 unit to 6. The Permian Basin is driving much of the new drilling activity in Texas and the U.S.

Source: Matt Zborowski, “BHI: US rig count makes fifth straight double-digit jump, Oil & Gas Journal, 17 Feb. 2017

Why Saltwater Disposal Wells Attract Investors

Saltwater Disposal Wells

Introduction...Last October we discussed here The Surprising Discovery Of One Oil Executive.    Now we want to continue that discussion Why Saltwater Disposal Wells Attract Investors by enjoying the ATM of the oil patch as described by insiders.

  • Location – The proximity of the Saltwater Disposal Wells “CSWD” to producing fields is critical, as the cost of transporting produced water to a disposal facility is one of the larger recurring expenses that an operator incurs. Our next facility is one of three in this immediate area.  However, none of them will accept saltwater from outside truckers.  They use their wells for the water they produce only.  As a result, the truckers are driving by this property and driving as much as an additional 50 miles to dispose of their water.
  • Water Commitment – Our well currently under contract is being utilized for only 10% of its daily licensed disposal capacity.  With trucks driving past the property every day, it will be relatively easy to convert them to customers.  The good news is contract requires the grandson of the seller be allowed by dispose of his water which is the current 10% utilization.  By the way, this small utilization is profitable as is.
  • Commitment to the Customer – The management of our next facility also operates producing properties.  The management understands the other issues that concern an operator as it relates to choosing their disposal partner.  These Issues such include safety, ease and speed of off-loading.  Accurate and readily available reporting is important to the trucking company.

Conclusion: The steady cash flow that is not dependent on oil pricing or new discovery makes prime CSWD properties a valuable asset.  That is one reason these ATM’s of the oil patch rarely come up for sale.  However, we have found a seller who is retiring and wants to spend more time with his wife.  Does this intrigue you? Drop me an email if you desire additional information on this discovery.  We have a current property under contract that meets  these requirements.

This has been Bill Moist, MS, CPA reporting today Why Saltwater Disposal Wells Attract Investors.

Why Are So Many Bullish On Oil?

Apache Drilling Andrews County

Indtroduction...A Wall Street Journal survey of 15 investment banks finds cautious optimism among oil watchers. The monthly survey is a good barometer for market sentiment, as shifts in price forecasts can signal a change in expectations. The latest survey finds that analysts predict that Brent will average $56 per barrel in 2017, up $1 per barrel from the previous month’s forecast. The banks also raised their forecast for WTI by $1 to $55 per barrel. As the WSJ notes, this was the first increase in the average estimate in five months.

And while the investment banks are more optimistic than last month, they are still, on average, predicting oil will trade in the mid-$50s per barrel over the course of the year – not exactly an aggressive call given that both WTI and Brent are currently trading just a bit below those levels. Moreover, the expectation of $55 for WTI in 2017 is sharply lower than the expectations from a year ago when the same 15 investment banks expected crude to trade well above $60 per barrel this year.

In summary…Still, on the whole the banks are a bit more bullish on crude than they were a few weeks ago, and that is noteworthy. Standard Chartered tops the list with an expectation of oil rising to the high-$60s before the year is out.

Source: Nick Cunningham, “Why Is Everyone So Bullish On Oil?” OilPrice.com, 30 Jan 2017

Trump Advances Keystone Pipeline

 Keystone Pipeline Executive Order Signed

Introduction…President Trump signed executive orders on Tuesday effectively reviving the controversial Keystone XL and Dakota Access pipelines, as a major builder said it will reapply to build one of the projects which had been stalled by the Obama administration under pressure from environmental and other groups.

The president said the projects would be subject to a “renegotiation of the terms.” But he made clear the government was resuming consideration for both pipelines, describing them as a potential boon to construction workers.

“We’re going to put a lot of … steel workers back to work,” Trump said. “We’ll build our own pipelines, we will build our own pipes.”

Builder TransCanada said Tuesday afternoon it was “preparing the application” for the Keystone XL pipeline.

“We appreciate the President of the United States inviting us to re-apply for KXL,” TransCanada spokesman Terry Cunha said in a statement.

“KXL creates thousands of well-paying construction jobs and would generate tens of millions of dollars in annual property taxes to counties along the route as well as more than $3 billion to the U.S. GDP,” Cunha added.

In conclusion...North Dakota Rep. Kevin Cramer said: “Today’s executive orders affirm President Trump’s respect for the rule of law and his support for responsible infrastructure development, energy production and job creation.”

It’s refreshing to have a president who genuinely desires to create American jobs for Americans. The forgotten man and woman as he stated previously.

Sources: “Trump signs orders reviving pipeline projects, TransCanada sales it will reapply for Keystone,” FoxNews.com, 24 Feb 2017; Athena Jones, “Trump advances controversial oil pipelines with executive action,” CNN Politics, 24 Feb 2017

$25 Trillion Investment Needed

  West Texas Drilling Rig

Introduction...We’ve been documenting the massive cuts in new oil and gas drilling programs.  Now we are seeing the results.  The world needs to invest US$25 trillion in new oil-producing capacity over the next 25 years to meet growing demand, Saudi Aramco’s chief executive Amin Nasser said at the World Economic Forum in Davos last Tuesday.

Demand is still healthy and oil “will be with us for decades”, CNBC quoted Nasser as telling a Wall Street Journal panel at the Davos forum. The global oil and gas industry needs to expand and requires more investment, Nasser said.

In summary…Wood Mackienzie sees E&P global spend rise with about 3 percent in 2017 to around $450 billion. According to WoodMac’s Malcolm Dickson, ‘’companies will get more bang for their buck,”as internal rates of return jump from 9 to 16 percent, comparing 2014 to 2017.

Source: Tsvetana Paraskova, $25 Trillion Invesement Needed To Meet Future Oil Demand, OilPrice.com, 17 Jan 2017

8 Easy Ways To Supercharge Your IRA or 401k

Introduction: This topic has been well received by various Chambers and civic groups.  So, far no one has taken me up on the guarantee because everyone learns something they’ve never heard before.  

If you are in Keller on February 15, 2017, I encourage you to attend this enlightening presentation.  If not and you are a member of a Chamber or civic group, contact me to book a personal presentation for your group.