Category Archives: Shale Oil

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

West Texas Oil Production More Stable Than Saudi Arabia?

PumpingRigWTexas Pumping Rig In West Texas

Introduction…Oil production increasing in west Texas Permian Basin,  the largest U.S. shale-oil region, as the  Bakken and Eagle Ford are experiencing production declines.

West Texas two-lane county roads are congested with trucks as energy companies are searching for deals even though the oil markets are in the worst condition of decades.

On October 26, 2015 we reported (http://oilandgasinsider.com/?p=449) a Chinese investment holding company signed a letter of intent to purchase West Texas oil fields in Howard and Borden Counties for $1.3 billion.

Companies like Exxon Mobile, Corp. to Anadarko Petroleum Corp. have also searched for assets in this region the size of Syria.  Exxon purchased 48,000 acres in two deals in August and is reportedly looking for additional acquisitions.

“We’re already seeing companies targeting the Permian,” said Alen Gilmer, chief executive officer of Austin-based Drilling Info.  “If you were to look for the most stable area today to do anything, it’s going to be there.  Today you might even argue it’s more stable than Saudia Arabia.”

In summary…Oil production in the Permian is forecasted by the  EIA to rise 0.6% in December to 2.02 million barrels a day evan as drillers idled 59 percent of rigs.  The rival shale fields, the Bakken and Eagle Ford, have fallen 12 percent and 25 per cent respectively.

Source: “Oil Producers Hungary for Deals Drool Over West Texas Tiramisu,” BloombergBusiness by Dan Wethe, November 15, 2015.

It’s Not A Matter If Oil Prices Will Head Upwards, But When

US Shale Oil Boom…

Looking solely at US Shale Oil production since 2007, it is no wonder that OPEC was caught off-guard by the pace of Shale Oil production growth. Production grew from just over a million barrels per day in 2007 to around 5.5 mmbbls/day at its peak earlier in April this year.

U.S. Shale Oil Production

US Shale Supply To Decline…

Shale production decline is a reality. Overall decline rates in the Bakken Shale are around 50%, Eagleford Shale 55% and the Permian is around 25% and the US rig-count has now fallen by over a half. So why have we not witnessed anything yet?

Well the answer to that is a mixed and somewhat cloudy one. Delays in completing some wells are clouding the decline picture as are delays in actual hard production data. The answer to the delays in both cases is around 4 months. We have to wait around 4 months to get the actual data for what is happening now, and quite often wells are not completed until some 4 months after they have been spudded.

Some have asked why oil companies in the US have not colluded to shut-in production and wait for higher prices. The simple answer, many smaller oil companies must continue producing to keep paying-off the loans that financed the well in the first place. A fact that the banks and bond-holders that have financed some of the more risky ventures are about to find out to their cost.

Iranian Crude Supply Fears Are Misdirected…

Despite the worries of extra supply coming back onto the table from Iran, perhaps as early as November, the expectations are perhaps a little exaggerated. Indeed Iran may have millions of barrels in storage ready to supply the market. However, as for immediate production abilities, that will take a little longer. Any production that Iran has shut-in over a long-period of time will take perhaps as much as 18 months to get back to full-swing. Beyond this, it is unlikely Iran will be able to increase its oil production much higher than 3.5 mmbbls/day without the aid of Western technology and know-how.

Worldwide Demand Trend Upwards…

Oil demand has resurged anew with the oil price currently below $50/bbl for both WTI and Brent. The IEA has had to revise its demand figures upwards again for this year and next with its forecast of 1.6 mmbbls/day growth this year. In fact, the underlying rate of demand growth is at just over 1.4 mmbbls/day year on year.

More recently, evidence of what exactly the low-oil-price-scenario has done for the world economy can be seen in the latest GDP releases. US GDP was reported at 3.7% last week, much higher than analysts were expecting. World GDP is likely to be above 3% this year and is forecast above 3% next year and into 2018, according to the World Bank group.

World Oil Supply vs. Demand

In conclusion…

As the commodities expert, Jim Rogers said last week, “The cure for low prices is low prices.” The decline in supply and the rise in demand is happening right now. It’s not a matter of if the oil price will head back upwards, but when?

Sources: Opinion: Why The Crude Oil Doom-Merchants Have Got It All Wrong, Oil Pro by Andy Douglas, September 3, 2015: Oil To Drop Again Before Sanity Can Return, Oil & Energy Insider by Evan Kelly, September 4, 2015

Oil Pricing Heads To Bear Market?

Screenshot 2015-07-26 13.19.42Crude oil slipped back into a bear market Thursday, disappointing U.S. shale drillers that pinned their hopes on higher prices.

West Texas Intermediate, the benchmark U.S. contract, tumbled 22 per cent since June 10 to US$48.14 a barrel on Friday, erasing more than US$100 billion in market value from the companies in the Bloomberg Intelligence North America Independent Explorers and Producers Index.

Crude oil pricing are down roughly 55% from their peak of nearly $107 in June of last year and have lost about 27% from the $66.15 low in November, which at the time was the lowest settlement in 5 years

Crude’s recovery fizzled amid a worldwide glut that shows little sign of abating. U.S. production remains near the highest level in four decades, output from Saudi Arabia and Iraq surged to record levels, and Iran is focused on resuming exports after reaching a nuclear agreement with world powers.

“Just when you thought it was safe to go back into the oil patch.”   Phil Flynn, senior market analyst for Price Futures Group Inc., said by phone from Chicago.   “The bear market is definitely putting another round of fear into the shale patch and the bankers of the shale patch.”

Source: “Oil reverts back to bear market, erasing more than US$100 billion for shale drillers,” Financial Post, Asjylyn Loder and Dan Murtaugh, Bloomberg News | July 24, 2015; “It’s bad-news bear market for crude oil,”  Market Watch by Myra P. Saefong, July 24, 2015; “Sudden Drop in Crude-Oil Prices Roils U.S. Energy Firms, Major job cuts, asset sales are expected: layoffs texted to engineers and scientists,” Wall Street Journal by Lynn Cook, July 26. 2015

U.S. Oil Production At 45-Year High

Screen Shot 2015-07-13 at 5.38.12 PMBig Dog Drilling Rig

U.S. oil production has peaked…at least for now.

“Even if production growth comes to a halt, it comes in at higher level than analysts expected earlier this year,”  said Jim Burkhard, head of global market research for IHS.

Despite the slowdown in U.S. oil patch, producers are expected to pump more oil in 2015 than in 45 years.  Expected average production is 9.5 million barrels per this year.  This equals about 40,000 more barrels per day than the EIA projected last month.

The domestic benchmark is expected to average $55 per barrel the rest of the year, which still allows the Bakken, Eagle Ford, Niobara, and Permian Basins to remain economically viable to support development and drilling.  The rigs and wells are becoming more efficient and productive, and the cost to drill and complete continue to fall allowing onshore drilling to grow again in 2016.

The EIA expects oil prices at $62 per barrel next year.

Sources: “EIA Confirms: Oil Production Peaked,” By Nick Cunningham, Oil Price.com, July 12, 2015; “U.S. oil output still barreling toward 45-year record,” by Rhiannon Meyers, Houston Chronicle, July 7, 2015;

Shale Producers Not Bowing To OPEC

Gualalupe Pass Drilling Rig

Introduction…Even though our President has chosen to bow to foreign dignitaries, so far our U.S. shale producers have not bowed to OPEC.

Saudi Arabia’s attack… When Saudi Arabia launched a global oil-price war last year, many assumed that America’s high-cost shale producers would be the first to retreat.

American companies were quick to idle drilling rigs and lay off workers, but U.S. onshore oil production has gone up since last fall, not down.

As oil minister from OPEC counties met last week, they were grappling with the fact that the world’s new swing producer is different animal from traditional competition.

The new swing producers…Shale producers have more in common with technology start-ups in Silicon Valley than big, often state-controlled, integrated oil companies that dominate the global oil markets.  They are much smaller, more nimble, take more risks and are more tied to the ebb and flow of the capital markets.

One consultant who often speaks with Saudi officials says, “they were surprised at how fast oil prices fell and how resilient shale producers were.”

U.S. Producers are different…In an industry dominated by behemoths, the U.S. oil industry stands out due to fragmentation.  It takes 77 companies to generate 77% of the American crude oil and related liquids.  Combined, this is more production than the world’s 20 largest producers, according to Rystad Energy, a consulting firm.  Only Canada and the U.K. are similarly fragmented.

In contrast, in Russia there are four companies, China three, Brazil one.  In Saudi Arabia, Iran, Mexico, and Kuwait, one state owned company controls 100% of total output.

In conclusion...If you think big government controlled companies are the best way to produce crude oil, then most of the Middle East, Russia,  and China agree.  On the other hand, if you think free enterprise and the American Spirit is the best way to produce crude oil, then Texas, U.S., Canada, and U.K. would agree with you.

If you are inclined to venture into projects that produce current cash flow as compared to future capital gains, drop me a note.
Sources: “Shale Upends OPEC Bloc Party,” Wall Street Journal by Greg Ip. Saefong, June 4, 2015