Category Archives: Shale Oil

Texas Oil & Gas Expansion Cycle

Texas Oil & Gas Expansion

Introduction…Crude oil and natural gas drilling and development in Texas has embarked upon a new cycle of expansion, according to the latest Texas Petro Index (TPI), which improved to 160.4 in March to post its fourth straight monthly increase.

Expansion is here…Driving the TPI upward during first quarter 2017 were crude oil and natural gas prices, drilling activity, the number of drilling permits issued, and the value of statewide oil and gas production, which were all higher compared to year-ago levels. However, the TPI is only about half the value of the record TPI of 313.5 in November 2014, and it still has not caught up in some other economic arenas.

Employment is increasing, but it still lags behind last year after the loss of well over 100,000 upstream jobs, said Ingham. An estimated 9,000 jobs have been added back since reaching the low point in September 2016.

Conclusion…”We still have a long way to go,” Ingham said, “but 2017 is going to be a year of recovery and expansion in the Texas statewide oil and gas exploration and production economy. “Activity levels will continue to expand, jobs will continue to be added, and the industry will support the broader state economy again, rather than acting as a drag on growth as it has for the prior two years.”

Source: “Oil and gas economy in Texas enters expansion cycle,” Oil & Gas Journal, 20 April 2017

Why Billions Are Pouring Into U.S. Shale

U.S. Shale Oil Boom

Introduction…Private equity funds raised $19.8 billion for oil ventures in the first quarter.  That is nearly three times the total raised the same period last year.

The accelerating pace of oil private equity, along with hedge funds and investment banks, arrives even as the recovery in oil prices from 8-year low has stalled at $50 per barrel due to stubborn oil glut.

Why the increase investment now?  The shale sector has become increasingly attractive to investors not because of rising oil prices, but rather because producers have achieved startling cost reductions – slashing up to half the cost of pumping a barrel in the past two years. Investors also believe the glut will dissipate as demand for oil steadily rises.

The financiers are confident that they can squeeze increasing returns from shale fields – without price gains – as technology continues to cut costs.  In addition, “Demand for oil has been more robust than anyone imagined three years ago,” said Mark Papa, chief executive of Centennial Resource Development Inc. (CDEV.O).

What now…This year’s drilling rush could be tested if global supplies grow too fast or if demand cools. The U.S. drilling rig count is rising at its fastest pace in six years and U.S. crude stockpile are close to 533 million barrels – near an all-time high and enough to supply the United States for 25 days.

In summary...”Shale funders look at the economics today and see a lot of projects that work in the $40 to $55 range” per barrel of oil, said Howard Newman, head of private equity fund Pine Brook Road Partners, which last month committed to invest $300 million in startup Admiral Permian Resources LLC to drill in West Texas.

Source: Earnest Scheyder, “Undaunted by oil bust, financiers pour billions into U.S. shale, Reuters, 17 April 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.

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

The Surprising Discovery Of One Oil Executive

the-surprising-dicovery-of-one-oil-executive

Reporting Bill Moist, MS, CPA

This Surprising Story is about a man I’ve known for many years.  We have worked on several projects together.  So this is a true story.

As with all those in oil & gas development they have:

  • Big discoveries
  • Small discoveries
  • Some that are not productive

So, he started asking how do we have these benefits of O&G in a more stable reliable environment.  What he wanted included the following:

  • Return of capital in months
  • High cash flow
  • Tax benefits of O&G
  • Steady long-term cash flow
  • Residual value in the property
  • Loyal locked in customers
  • Low maintenance costs
  • Not dependent on new oil and gas exploration
  • If regulators get stupid and limit fracking, it is still ok
  • The best of oil & gas development without the downside

What he found is generally not available to purchase because it is a cash cow for those how already own it.  However, some current economic events are creating the availability (for a time) to purchase existing properties at deep discounts.

Click here to watch video The Surprising Discovery…

Also, regulation makes it difficult and slow to develop new properties which restricts supply.

So, who is this mysterious oil and gas executive who discovered a better more stable way to participate?

What did he discover?

Email or text me your contact information and I’d be happy to share more on a private basis.

This has been Bill Moist, MS, CPA reporting today The Surprising Discovery Of One Oil Executive.

Recovery For Texas Energy

740_energy_oil_and_gas_image_7914 West Texas Oil Boom

In the midst of the shale boom in 2013, Texas added more than 19,000 new jobs in the oil and gas production sector, leading the U.S. job increase in the industry by a wide margin. But back then, global oil prices were stable all year around at US$100 and slightly more.

Crude prices have crashed since 2014—now barely clinging on to above US$50—effectively stagnating drilling activity and oil jobs growth.

Texas, for its part, has shed over 91,000 jobs in oil and gas industry since the end of 2014, with the Houston area economy on the cusp of a recession, according to an article in The Wall Street Journal.

The Dallas Fed has said that signs of recovery have emerged in the U.S. oil market, most notably in the Permian. The Dallas Fed also noted that Texas’s oil and gas employment increased in August—a first since 2014—suggesting that the worst of the energy crisis may be over.

“Increased activity in the Permian Basin and elsewhere has affected employment in the Texas mining sector, which rose slightly in August—its first increase since late 2014,” the Fed statement said.

The Dallas Fed issued probably the most bullish comment on the Texas oil economy so far this year, when Fed economist Pia Orrenius said that encouraging employment growth in Texas suggests that “the worst of the energy crisis may be over”.

In summary...So the latest numbers show that Texas has been overcoming this energy downturn – as it has done with many other lows – to continue to be the mainstay for America’s superpower status.

Reference:  Tsvetama Paraskova, October 14, 2016, Texas Is Making An Energy Recover, OilPrice, OilPrice.com

U.S. Now Largest Global Oil Reserve

 The United States has surpassed Saudi Arabia and Russia as the global leader in oil reserves.  This from a Norwegian consultancy firm report.

“We have done this benchmarking every year, and this is the first year we’ve seen that the US is above Saudi Arabia and Russia,” Per Magnus Nysveen, head of analysis at Rystad Energy, said. He credited the rise to a sharp increase in the number of discoveries in the Permian basin in Texas over the past two years.

The report found that many, especially members of the Organization of Petroleum Exporting Countries, exaggerated the size of their reserves in self-reported surveys. Rystad Energy came to the conclusion by only recording each country’s economically viable reserves.

American oil reserves have grown dramatically in the past two years due to improvements in technology for extracting shale called fracking. Increased productivity has cut the cost of extracting oil in half in the past two years, when compared to the price per barrel.

Nysveen is forecasting the price of the barrel to bottom out soon as supply is beginning to rebalance. “At the end of the year, we will see increases again in US oil production,” he said.

In summary…The future implications of the larger reserves as positive for the US economy. As the world’s largest consumer of oil, the reserves will help cut America’s trade deficit and strengthen the dollar. Geopolitically speaking, the large reserves will prevent oil from being used as a political tool against the United States as it can remain self-sufficient.

The last eight American Presidents have promised independence from foreign oil.  In spite of much opposition, the U.S. oil and gas industry has been using innovation to change the balance of geopolitical power in our favor.

Crude Drops After Producers’ Fail To Cut Output

Forget Doha

Almost 60% of the world’s oil producers gathered in Doha on Aril 17 to discuss freezing their production output at January levels in effort to stabilize prices.  Russia, Saudi Arabia, Qatar, and Venezuela made a preliminary deal in February and were seeking to add more producers and extend the recent price recovery.

The oil producers failed to reach an agreement to freeze production.  Just after the futures market opened Monday. April 18th around 6 P.M. ET, West Texas Intermediate fell 6% to a low of $39.02. However, by the close on Monday he price had risen to $40.36 or producing only a 4% decline since April 12th recent high.

Some of the headlines said, “Crude Crashes…” or “Crude Oil Plunges…”  A 4% drop to $40.36 from the April 12th high, hardly seems like a crash, but the news must be sold.

A several mediating factors may be at work.

  1. Striking oil workers disable 60% of Kuwait’s production
  2. U.S. production drops below 9 million bpd law week according to EIA
  3. Canada oil industry to see 62% decline in investment
  4. Drop in non-OPEC supply should accelerate through rest of year and into 2017

In conclusion, regardless of what didn’t happen in Doha, the market is starting to rebalance.  And read the news, not just the headline.

Oil Is Still In Demand

oildemand-forecasts Everything about the oil market – 2015 and 2016 – is peculiar.  Oil prices have plummeted, yet production has not.  This is defying textbook economics.  In some big oil producing regions, output is actually rising.  Demand is up too, yet prices keep falling.

How to make sense for this?  This particular price collapse is unlike the others, so history is not an accurate guide.

The variable that seems to apply to this particular price collapse is supply and lots of it.  Supply has been outpacing demand, which is why any rally since the downturn is short-lived.  Prices are down 35% in the last year and about 70% in the last year and a half.

Much of the theory for weak demand is blamed for oil pricing collapsing.  It is far more sensible to blame rising supplies.  As supply glut builds, oil prices could fall even if global demand stays or rises.  On last Tuesday, the World Bank sliced its 2016 forecast from and average crude prices of $37 a barrel, from its previous forecast of $52.

Almost $400 billion of crude oil projects have been suspended.  The IEA says energy-project spending fell 20% last year and is on similar course this year.

The best cure for low oil prices is low oil prices as economists say.

Source: Oil is still in demand -it’s the glut that is hurting price by Eric Reguly, The Globe And Mail, January 29, 2016

Oil Markets Remain Oversupplied

Let’s look at  last week’s key figures for the oil & gas industry.  U.S. oil production is slightly up, whereas oil futures have been trading lower. Gasoline prices continue their trend downwards.

Friday, December 6, 2015 WTI closed at $39.97, down $1.11 for the week.

U.S. Oil Production

Friday OPEC’s meeting in Vienna did not give oil markets any relief. There was little expectation of an agreement on production cuts, despite the majority of OPEC members pleading with Saudi Arabia to reverse course and cut back the cartel’s output target level, which stood at 30 million barrels per day (mb/d) heading into the meeting.

In summary, here we are a year after Saudi Arabia decided to keep market share rather than cutting production to support pricing.  That decision combined with the U.S. shale industry keeping production levels up has precipitated in a nearly 50% drop in oil prices from a year ago.

Source: OPEC Won’t Cut, Markets Remain Oversupplied, OilPrice.com by Evan Kelly, December 4, 2015