Category Archives: Energy Independence

U.S. To Dominate World Oil Markets

Issue 122 – U.S. Historic Oil Surge

Introduction…The U.S. will be a dominant force in global oil and gas markets for years to come as the shale oil boom becomes the biggest supply surge in history.  This predicted by the International Energy Agency (IEA,)

The report...U.S. production surge to equal Saudi Arabia expansion at its highest point.  The natural gas increases will surpass the former Soviet Union.  This stated in the annual World Energy Outlook.  This boom will turn the U.S. from an oil importer to the biggest exporter of fossil fuels.

“The United States will be the undisputed leader in global oil and gas markets for decades to come,” IEA Executive Director Fatih Birol said Tuesday in an interview with Bloomberg television. “There’s big growth coming from shale oil, and as such there’ll be a big difference between the U.S. and other producers.”

Conclusion...The United States oil and gas production has come a long way since OPEC was able to create the 1973 Oil Embargo.  A sleeping giant was awakened causing the massive development of shale oil and gas fracking.

Source: Grant Smith, “U.S. to Dominate Oil Markets After Biggest Boom in World History,” Bloomberg Markets, 13 November 2017.

Growth In U.S. Natural Gas Production Creates Opportunity

Issue 99 Loading First LNG Shipment At Sabine Pass

Introduction….The first export shipment of liquefied natural gas (LNG) produced in Lower 48 states on February 24, 2016 is a milestone reflecting a decade of natural gas production growth puts the U.S. in a new position in worldwide energy trade. (EIA)

The rapid growth of shale gas has increased natural gas production each year since 2006.  The resulting decline in natural gas prices has led to rising natural gas exports to Mexico via pipeline, and now to overseas markets via LNG tankers.

Under construction or approved…

Cheniere Energy’s Sabine Pass Liquefaction Project in Sabine Pass, Louisiana, consists of six different liquefaction units, or trains, the first of which began service in February after many delays. The other trains are in various stages of development and permitting. Total permitted capacity by FERC is 4.16 Bcf/d.

Four LNG export terminals are currently under construction:

  • Dominion Energy’s Cove Point LNG facility in Cove Point, Maryland, is scheduled to bring one train totaling 0.82 Bcf/d online near the end of 2017.
  • Corpus Christi LNG, another Cheniere project, is under construction in Corpus Christi, Texas. The terminal is scheduled to begin service in 2018, with total permitted capacity at 2.14 Bcf/d.
  • Sempra Energy’s Cameron LNG terminal, located in Hackberry, Louisiana, is under construction and is scheduled to bring three trains online in 2018. A total of 1.7 Bcf/d has been permitted.
  • Freeport LNG‘s terminal planned for Freeport, Texas, has three trains under construction totaling 1.8 Bcf/d. The first two are scheduled to begin service in 2019, and the third in 2020.

Another terminal, Southern Union’s Lake Charles (Louisiana) LNG facility, has been approved by FERC but is not yet under construction. Lake Charles also has an LNG import terminal. Several more LNG export terminals, mostly on the Gulf Coast, have been proposed or have pending applications with FERC.

A lesson from history…You may remember the story off the San Francisco 49ers gold rush where a total of $2 billion worth of gold was extracted during the Gold Rush, which peaked in 1852.  The  non-native population swelled by 99,000 in the California territory

The company that provided the cloths needed by the 49ers is still in operations today.  Levi Strauss & Co. had 2016 sales totaling $4.6 billion.  Itls one year sales were more than twice the value of the gold rush that started the company.

Today’s opportunity created by growth in natural gas production?…Some might think today’s opportunity is in building the LNG export facilities.  However, that is a major capital expenditure with several years required to get any payback.  Many are developing and producing natural gas.  That’s not it either.

However, Just as in the 49ers story, the biggest opportunity is in providing the what is desperately needed by the producers.  This service is required by the environmental regulators.  It’s not salt water disposal either.  In fact it’s more profitable.  Message me  to learn more at bill@billmoist.net.

Sources:  “Growth in domestic natural gas production leads to development of LNG export terminals” U.S Energy Information Administration (EIA,) 4 March 2016; “Summary of LNG Export Applications of the Lower 48 States,” Energy.gov

OPEC Losing War With Fracking

OPEC Meeting Discussing Production Cuts- 98th Issue

Thanks to the shale revolution, U.S. production is up and costs have dropped significantly. Yet, OPEC is trying to increase prices by cutting its production.

First shale oil and now offshore deep-water oil are reducing their costs of production, making it more difficult for OPEC’s policies to have the intended effect. Shale oil production costs have come down significantly over the past several years, making its production profitable at below $40 a barrel.

Now, deep-water oil production is expected to bring down its costs to between $40 and $50 per barrel by early next year from an average break-even price of about $62 in the first quarter of this year and $75 in 2014. OPEC expects to keep oil prices between $50 and $60 a barrel by extending its production cuts for another nine months—keeping roughly 2 percent of global oil production off the market to increase prices.

Where is this going…As U.S. oil production increased in recent years, OPEC oil got edged out of the lucrative American oil market. America imported about 60 percent of its oil in 2007, but by 2014, the U.S. only imported 27 percent of its oil, according to government data. And now in 2016, net U.S. oil imported droped to 25% of its oil.  The rising U.S. oil production reduced demand for Saudi oil abroad, too, keeping prices low.

The Organization of the Petroleum Exporting Countries lost $76 billion in 2016 due to low oil prices caused by rising U.S. oil production, according to a report published May 15th by the U.S. Energy Information Administration.

In summary…Every U.S. President, since the 1973 Arab Oil Embargo has calling for U.S. energy independence.  Now the Frackers have accomplished just that by finding a way to be profitable in these low energy prices.  God bless the Frackers.

Source:  Tom Stepstone, “OPEC Cuts Production in Losing War with Fracking,” OIlPro, June 8, 2017;  Andrew Follett,  “OPEC Lost $76 Billion Last Year Due to US Fracking,” The Daily Signal, 16 May 2017

No Longer Dependent On OPEC?

Results Of 1973 OPEC Oil Embargo

Introduction…The 1973-1974 OPEC Oil Embargo on the United States caused the price of oil to nearly double, high inflation, high unemployment, and shortage of gasoline resulting in long lines at the service station.  The pledge of nearly every U.S. President since President Richard Nixon has been U.S. energy independence.

Click here to watch the video that demonstrates this shift in economic dependence.

Let’s briefly review a few of the oilandgasinsider.com articles that demonstrates this shift in economic dependence.

  1. Texas Oil & Gas Production in Expansion Cycle
  2. Why Billions Are Pouring Into U.S. Shale
  3. Private equity funds raised $19.8 Billion for US oil ventures first quarter
  4. Even though price is still around $50 per barrel because producers have slashed up to ½ the cost of pumping oil from 2 years ago, making new production profitable
  5. OPEC On The Brink of Collapse
  6. Russia Cutting Production as U.S. Shale Escalates
  7. Dumping Billions in Canadian Assets For Permian Basin
  8. Marathon acquired 70,000 acres in Permian and 51,500 acres for $1.1 Billion
  9. Why Major Oil Company Goes Big On US Shale- ExxonMobile –major oil companies all but abandoned new US production several decades ago.
  10. Texas Fifth Straight Double Digit Jump in oil rig count on February 7, 2017
  11. Nearly $1 Trillion Worth Of Oil Found In Texas, Largest Deposit Ever Discovered In US.
  12. Permian Basin producing oil and gas since 1920 so infrastructure is well developed reducing production costs. And some are still claiming the largest deposit ever discovered in the US

Conclusion…The United States did oust Saudi Arabia as the world’s largest oil producer May 2016.  However, Saudi Arabia regained that title four months later. But, just as important, the United States holds 264 billion barrels of oil of which one-half is in shale.  This total exceeds both Russia and Saudi Arabia.

To conclude the U.S. is “No Longer Dependent on OPEC” may be true finally after 45 years of Presidents pledging to make the United States energy independent.  This is Bill Moist, MS, CPA

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Russia Cutting Oil Production As US Shale Escalates

Massive Oil Discoveries In Texas

Introduction…Russia plans to fulfill its obligations to cut oil output in line with the agreement between oil producing countries by the end of April, while more broadly assessing longer-term structural developments in the market, according to the country’s energy minister.

“Russia is reducing its oil production in stages, in accordance with the plans that we worked out voluntarily with our production companies,” Alexander Novak told CNBC during an exclusive interview in Arkhangelsk, Russia.

“The decrease in production in January and February were ahead of tempo with regards our initial plans. Currently, in March we have already reached a reduction level of 200,000 barrels a day. We anticipate complying with the figure set forth in the agreement by the end of April,” he revealed, noting this would constitute a reduction of 300,000 barrels of oil per day.

US Shale Escalates...The Russian energy minister’s comments come amid changes in U.S. policy under new President Donald Trump who has pushed forward the idea of energy independence for the country by executive order. This as recent months have seen a resurgence in activity by U.S. shale producers who have been encouraged to return to supplying the market given a rebound in the oil price.

“It’s clear that we are all assessing the situation in a sober fashion, we understand that there will be a rise in the production of shale oil” …Novak, “acknowledging that the rise in shale oil production could be up to 400,000 barrels a day this year.”

In summary…The oil producers are acknowledging that U.S. oil independence is not new.  Now President Donald Trump is pushing forward with executive order to that goal with his “America First Energy Plan.”

Source: Gemma Action, “Amid surging US shale, Russia is quietly cutting production and looking at bigger picture,” CNBC, 30 Mar 2017; “An America First Energy Plan,” WhiteHouse.gov.

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.

Trump Presidency Bullish On Oil & Gas Production

PumpingRigWTexas Pumping Rig W Texas

Introduction…While there are some specifics about President-elect Donald Trump‘s energy policy to be worked out, overall his presidency is “very bullish long term for oil and gas,” Warwick Energy CEO Kate Richard told CNBC on Thursday.

Trump has said he wants to roll back regulations and produce more energy, which he believes will create more wealth for America.

Richard thinks Trump’s economic plan could probably spur economic growth and demand for oil.

“I think the market loves Republican administrations and infrastructure is very bullish for crude and natural gas demand,” she said in an interview with “Power Lunch.”

Trump has promised a massive infrastructure spending program, saying in his victory speech early Wednesday morning he’s going to fix highways bridges, tunnels, airports, schools and hospitals — and put millions of people to work to get it done.

While Richard believes Trump’s energy policy is “interesting,” she noted the whole story can’t be put together yet.

For one, she said talk about repealing Environmental Protection Agency regulations are a little hard to understand.

“We haven’t seen a decline in drilling in this country because of EPA regulations. We’ve seen a decline in drilling in this country because of two years of low prices,” she said.

Conclusion…In Texas, the Texas Railroad Commission is primarily responsible for regulating the oil and gas industry.  One could conclude it has done an amazing job of protecting the public health and promoting the industry.  The primary benefit of a Trump Presidency to the industry may be not be a change in regulations.  Rather the increase in economic activity and infrastructure improvement from his intitatives may drive demand for oil related products.  Howevert, it is reassuring to have a President-Elect who understands that a healthy oil and gas industry is important to the overall economic health of the country,

Source: “Trump presidency bullish long term for oil and gas, energy CEO Says, CNBC, Michaelle Fox, 10 Nov 2016

20 Billion Barrels Of Oil North Of Midland Says USGS

wolfcamp-03-jpg-scale-largeThe Wolfcamp Is Largest US Shale Play

Introduction...The Wolfcamp Shale Formation is the largest continuous oil that the USGS has ever assessed in the United States.  Many are calling this discovery just north of Midland and west of Abiliene ‘world class.’

“The Wolfcamp could possibly become the largest oil and gas discovery in the world,” said Scott Sheffield, chief executive officer, Pioneer Natural Resources Co.

The operator is the largest acreage holder in the Spraberry/Wolfcamp field with about 900,000 gross acres (730,000 net acres), the majority of which could be prospective for the horizontal Wolfcamp shale.

Based on Pioneer’s extensive geologic database, petrophysical analysis, and successful drilling results to date, there is significant horizontal Wolfcamp shale resource potential in this acreage.

A vast resource...”The Wolfcamp is interesting because it’s been out there,” said J. Ross Craft, chief executive officer, Approach Resources Inc. Since the onset of Permian development in the early 1920s, operators have drilled through this formation. “Early in my career, we knew the Wolfcamp as a nonproductive shale that would put oil in the pits every once in a while,” Craft said. “That was about it.”

Today, Approach Resources holds 170,000 gross acres (mostly contiguous) in the Permian basin with a reported production of 8.4 MMboe/d as of the first quarter of 2013. In 2012, then company held 95.5 MMboe of proved reserves, with 69% represented by oil and natural gas liquids. “When we first started the company in 2006, we had a $5 million commitment, 0 acres, and 0 reserves,” Craft said.

Both Pioneer and Approach Resources tout Wolfcamp potential as a boon for the industry. According to Sheffield, Pioneer’s Eagle Ford success has provided a smooth transfer into the Wolfcamp. “When comparing phases of development, we see the Wolfcamp trending higher than the Eagle Ford based on activity and production,” he said.

According to Sheffield, the company will test 13 zones within the next 3 years. Sheffield noted that recoverable reserves were based solely on the Wolfcamp A, B, and D shelves and the Jo Mill formation. The potential is enormous, and “more reserves are yet to be discovered,” Sheffield said.

Pioneer combines its Spraberry/Wolfcamp acreage. It operates on the northern end of the play, which is said to contain an estimated 3,500-4,000 ft of shales, which translates to nearly 3 to 4 million acres when considered in 3D space as opposed to surface area. “Compare that to the Eagle Ford shale formation, which is about 300 ft thick and the Spraberry/Wolfcamp shale, with its 50 billion boe, begins to dwarf the Eagle Ford and the Bakken with 27 billion boe and 13 billion boe, respectively,” Sheffield said.

Conclusion…The United States is not running out of oil and gas anytime soon as new application of technology is discovering vast resources.

Take away...Some in the oil and gas industry are saying that the produciton costs of thi new shale play make it uneconomical and this is a just a stock price publicity push for Pioneer and Apache.  Time will tell.

References:  USGS Estimates 20 Billion Barrels of Oil in Texas’ Wolfcamp Shale Formation, USGS.gov., November 15, 2016; Permian’s Wolfcamp formation called biggest shale oil field in U.S., Joe Carroll, Bloomberg News, November 15, 2016

Injection Versus Disposal Wells

Saltwater Disposal Well

Straightforward Operation- Saltwater Disposal Wells

Introduction…Due to our current opportunity in acquiring Saltwater disposal Wells, further discussion of the topic is appropriate.  So, what is the difference between injection wells and disposal wells?

Disposal wells may be used to inject mineralized water produced with oil and gas into underground zones for the purpose of safely and efficiently disposing of the fluid. Typically, the underground interval is one that is not productive of oil and gas. In some cases, however, the disposal interval is a productive zone from which oil or natural gas has been produced or is currently produced. In either case, the disposal interval must be sealed above and below by unbroken, impermeable rock layers.

Injection wells inject fluids into a reservoir for the purpose of enhanced oil recovery from the reservoir. The vast majority of wells in Texas are injection wells. Operators use injection wells to increase or maintain pressure in an oil field that has been depleted by oil production and also to displace or sweep more oil toward producing wells. This type of secondary recovery is sometimes referred to as waterflooding.

Why Texas is so great…Texas is the nation’s number one oil and gas producer with more than 294,543 active oil and gas wells statewide according to oil and gas well proration schedules (as of September 2016). Injection and disposal wells are also located throughout the state to improve oil and gas recovery and to safely dispose of the produced water and hydraulic fracturing flowback fluid from oil and gas wells.

Texas has more than 54,700 permitted oil and gas injection and disposal wells with approximately 35,915 currently active as of September 2016. Of these 35,915 active injection and disposal wells, about 7,482 are wells that are used for disposal, the remainder (about 28,433) are injection wells.

Operators requirements...Operators are required to follow the Texas Railroad Commission (Commission) disposal regulations administered by the agency’s Technical Permitting Section – Underground Injection Control (UIC) Program. Underground Injection Control is a program that is federally delegated by the U.S. Environmental Protection Agency (EPA) to Texas, and it follows national guidelines under the federal Safe Drinking Water Act for surface and groundwater protection. EPA awarded the Commission primary enforcement responsibility over oil and gas injection and disposal wells on April 23, 1982.

In conclusion…Disposal wells ( our current focus)  are not terribly complicated as compared to oil and gas exploration and development.  Nevertheless, certrain requirements of the Texas Railroad Commission are required.  The Commission is oneof the first agencies our team contacts during due dilegence on any future saltwater well purchase is the Commission.

Source: “Injection and Disposal Wells,” Texas Railroad Commission, rrc.state.tx.us

Three Keys To Successful CSWD Facility

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CSWD Facility

Introduction...Last week we discussed here The Surprising Discovery Of One Oil Executive.    This week we want to continue that discussion by getting into the Three Keys To Successful Commercial Salt Water Disposal (CSWD) Facility.  The ATM of the oil patch as described by insiders.

  • Location – The proximity of the 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 located approximately three miles from one of the larger producing fields in area. This producer disposes of approximately 325,000  barrels of water per month in the county. A larger portion of this producer’s water is produced in close proximity to our next facility, as way of illustration.  This producer wiill commit a large portion of their produced water to us.
  • Water Commitment – The commitment of water directly from the operator / producer is important to the our next facility. This allows the management to contract the water either directly with our preferred trucking company. Our preferred trucking company will base a number of their trucks at the facility and haul all water they have access to within a 20-mile radius.
  • 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.  The facility will aslo provide driver amenities such as clean restrooms, cold water, and snacks.

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 that has good facilities that can be acquired.  Drop me an email if you desire additonal information on this discovery.

This has been Bill Moist, MS, CPA reporting today Three Keys To Susccessful CSWD facility.