Category Archives: Homeland Energy

Petroleum Demand Highest In 109 Months

Issue 100- Texas Gulf Coast Drilling

Introduction…American Petroleum Institute reports U.S. petroleum demand for last month was the hightest in 109 months.  Total U.S. petroleum delivers in May moved ut 4.9% from May 2016 to an average of 20.1 million b/d.  These were the highest May deliveries in 10 years and the highest delivery for any month in more than 9 years.

What caused demand to increase? The overall US economy grew adding 138,000 jobs in May.  The unemployment rate changed little at 4.3%.

“Strong demand for petroleum is a good sign for the economy which grew for the 96th consecutive month,” said Chief Economist Erica Bowman. “American workers and consumers continue to benefit from these positive economic signs along with relatively low fuel prices.”

Crude oil production was up from the prior month, the prior year, and the prior year-to-date to the highest output level for any month since October 2015. Crude oil production increased 0.9% from April and was up 5.1% from May 2016 to average 9.3 million b/d in May.

In conclusion…A strong U.S. economy creates a strong demand for petroleum.  In this case, what’s good for the U.S. economy is good for the petroleum industry.

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

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.

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.

Jump In U.S. Oil & Gas Rig Count Impact

oilwelldrillbigLast week the  U.S. oil and gas rig count increased by 15 to a total of 462.  Canada rig count up seven to new total of 102 according to Baker Hughes report.

The biggest gains were in Texas where 15 new rigs were brought online with the Permian Basin adding eight.

At the time the rig count was released, West Texas Intermediate was trading at $43.94, but slumped by $.83 midday Friday.

In conclusion…The decline in price is attributed to a ramp-up in drilling fields that are profitable with oil below $50 per barrel, adding to supply surplus.

Where Is U.S. Exporting Oil?

Export Tanker Crude Leaving The U.S.

It has only been three months since the U.S. lifted a 40-year ban on oil exports.  So, it may be surprising that American crude is flowing to virtually every corner of the market and remaking the world’s energy map.

Overseas sales, which started on December 31 with a small cargo aboard the Theo T tanker have been picking up speed.  Exxon Mobil, China Petroleum, and Chemical Corp have joined independent traders Vitol Group and Trafigura in exporting American crude.

“The flurry of export activity is helping support spot oil prices in the U.S. relative to contracts for later delivery,” said Amrita Sen, chief oil analyst at Energy Aspects, Ltd in London.

American stockpiles are at unprecedented levels, so oil takers laden with U.S. crude have docked in, or are headed to France, Germany, the Netherlands, Israel, China, and Panama.  Oil traders said other destinations are likely.

One reason behind the rise in exports is cheap pipeline and railway fees to move crude from the fields in Texas, Oklahoma, and North Dakota into the ports of the U.S.  Another reason is that the U.S. prices have been trading at a discount to Brent crude, allowing traders to move oil from one shore of the Atlantic to another at a profit.

Source: “The U.S. Is Exporting Its Oil Everywhere, Javier Blas, BloombergBusiness, March 17, 2016

Saudi Oil Minister To Face U.S. Rivals

 Western Midland Oil Rig

This week, Saudi Oil Minister Ali Al-Naimi will for the first time face the victims of his decision to keep oil pumps flowing despite a global glut: U.S. shale oil producers struggling to survive the worst price crash in years.

While soaring U.S. shale output brought on by the hydraulic fracturing revolution contributed to oversupply, many blame the 70-percent price collapse in the past 20 months primarily on Naimi, seen as the oil market’s most influential policymaker.

During his keynote on Tuesday at the annual IHS CERAWeek conference in Houston, Naimi will be addressing U.S. wildcatters and executives who are stuck in a zero sum game.

“OPEC, instead of cutting production, they increased production, and that’s the predicament we’re in right now,” Bill Thomas, chief executive of EOG Resources Inc (EOG.N), one of the largest U.S. shale oil producers, told an industry conference last week, referring to 2015.

It will be Naimi’s first public appearance in the United States since Saudi Arabia led the Organization of Petroleum Exporting Countries’ shock decision in November 2014 to keep heavily pumping oil even though mounting oversupply was already sending prices into free-fall.

This week, Saudi Oil Minister Ali Al-Naimi will for the first time face the victims of his decision to keep oil pumps flowing despite a global glut: U.S. shale oil producers struggling to survive the worst price crash in years.

While soaring U.S. shale output brought on by the hydraulic fracturing revolution contributed to oversupply, many blame the 70-percent price collapse in the past 20 months primarily on Naimi, seen as the oil market’s most influential policymaker.

During his keynote on Tuesday at the annual IHS CERAWeek conference in Houston, Naimi will be addressing U.S. wildcatters and executives who are stuck in a zero sum game.
“OPEC, instead of cutting production, they increased production, and that’s the predicament we’re in right now,” Bill Thomas, chief executive of EOG Resources Inc (EOG.N), one of the largest U.S. shale oil producers, told an industry conference last week, referring to 2015.

It will be Naimi’s first public appearance in the United States since Saudi Arabia led the Organization of Petroleum Exporting Countries’ shock decision in November 2014 to keep heavily pumping oil even though mounting oversupply was already sending prices into free-fall.

Naimi has said this was not an attempt to target any specific countries or companies, merely an effort to protect the kingdom’s market share against fast-growing, higher-cost producers.

It just so happens that U.S. shale was the biggest new oil frontier in the world, with much higher costs than cheap Saudi crude that can be produced for a few dollars a barrel.

“I’d just like to hear it from him,” said Alex Mills, president of the Texas Alliance of Energy Producers. “I think it should be something of concern to our leaders in Texas and in Washington,” if in fact his aim is to push aside U.S. shale producers, Mills said.

Last week’s surprise agreement by Saudi Arabia, Qatar, Russia and Venezuela to freeze oil output at January levels – near record highs – did not offer much solace and the global benchmark Brent crude LCOc1 ended the week lower at $33 a barrel and U.S. crude futures CLc1 ended unchanged at just below $30. <O/R>

Prices fell sharply on Tuesday after Iran, the main hurdle to any production control in its zeal to recapture market share lost to sanctions, welcomed the plan without commitment. Iraq was also non-committal.

Many U.S. industry executives understand that all is fair in love, war and the oil market, but “the Saudis have probably overplayed their hand,” said Bruce Vincent, former president of Houston-based shale oil producer Swift Energy (SFYWQ.PK), which filed for bankruptcy late last year.

It just so happens that U.S. shale was the biggest new oil frontier in the world, with much higher costs than cheap Saudi crude that can be produced for a few dollars a barrel.

“I’d just like to hear it from him,” said Alex Mills, president of the Texas Alliance of Energy Producers. “I think it should be something of concern to our leaders in Texas and in Washington,” if in fact his aim is to push aside U.S. shale producers, Mills said.

Last week’s surprise agreement by Saudi Arabia, Qatar, Russia and Venezuela to freeze oil output at January levels – near record highs – did not offer much solace and the global benchmark Brent crude LCOc1 ended the week lower at $33 a barrel and U.S. crude futures CLc1 ended unchanged at just below $30.

Prices fell sharply on Tuesday after Iran, the main hurdle to any production control in its zeal to recapture market share lost to sanctions, welcomed the plan without commitment. Iraq was also non-committal.

Many U.S. industry executives understand that all is fair in love, war and the oil market, but “the Saudis have probably overplayed their hand,” said Bruce Vincent, former president of Houston-based shale oil producer Swift Energy (SFYWQ.PK), which filed for bankruptcy late last year.

Summary…While Naimi has said this was not an attempt to target any specific countries there was much discussion in both Russia and OPEC of the rise of the U.S. shale producers.  It is not too difficult to believe they would be happier if the shale producers gave up thier market share.

How’s Your Perspective Today?

Perspective I love this graphic.  The markets are always changing.  What we think is normal, rarely seems to stay put very long.

Two headlines I read reveal different perspectives:

              Oil Off To A Bad Start Of The Week As Dollar Gains Strength

               U.S. Rig Count In Free Fall: Plunges By 48 In One Week

So is the oil pricing just getting worse, or is there a possibility of improvement soon?

I  attended a Houston real estate conference  with 3,000 other people hosted by Del Walmsley.  Del shared some macro economic statistics with us.  One item he shared was the United States now has the best economy in the world.  Is that due to Europe, Japan, and the countries dominated by oil exports are going broke?

For example, Saudi Arabia needs $68 oil to support its social structure.  It has been borrowing money and spending currency reserves to support its welfare state.  The other oil exporters are in worse shape.

Japan’s economy is struggling with a shrinking population.

Europe’s social welfare system is bankrupting the countries.

Even China’s rate of growth has slowed to its lowest in 25 years.  The true state of China’s economic fortunes remains a mystery to the world due to government manipulation.

The United States is the largest recipient of foreign direct investment (FDI) in the world. FDI is a critical driver of economic growth and job creation and an increasingly attractive target for economic development agencies.  Reported by the U.S. Bureau of Economic Analysis.

The largest FDI in the United States comes from China.

In Gregory, Texas, a huge steel pipe plant buzzes with activity and makes history in the process. Chinese-based Tianjin Pipe Corporation made a $1 billion investment in the plant, marking the largest investment by China in an American manufacturing facility.

It’s also a landmark in the development boom around the Port of Corpus Christi, which has seen an increase in foreign investment, thanks to financial incentives and its own geography.

In conclusion…How’s Your Perspective Today?  Is there more opportunity or less opportunity?

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

Ethanol…Increase Or Decrease Emissions

SciCheck Dueling TV ads are running heavily in Washington, D.C. Those against claim the federal ethanol mandate “doubles greenhouse gas emissions.” At the same time, the ethanol lobby says that “the oil industry is lying” and the mandate will lead to lower emissions.

 A 2011 report by the National Research Council, part of U.S. National Academies, found the matter is under review by the Environmental Protection Agency’s internal watchdog.

In fact, the ethanol lobby misleads viewers by suggesting that only “big oil” is apposed to the mandate when several environmental groups oppose it as well.  Other coalition owners include restaurant owners concerned with the upward pressure on food prices and boat manufacturers are upset about the problem ethanol causes marine engines.

The heavy lobbying is taking place in advance of the November 30 deadline for the EPA to finalize requirements fo total volume of ethanol to put into gasoline.

National Research Council: [A]ccording to EPA’s own estimates, corn-grain ethanol produced in 2011, which is almost exclusively made in bio refineries using natural gas as a heat source, is a higher emitter of GHG than gasoline.

Former Vice President Al Gore has called the federal requirement for adding corn-based ethanol to gasoline “a mistake.” In a 2010 address in Athens, Greece, Gore said he had come to conclude that burning ethanol had helped increase food prices, and that he had erred in backing the requirement as a presidential candidate in 2000.

Is the EPA’s new regulations to increase, decrease, or keep the Ethanol mandate requirement as it has in the past?  Chcek in a few days to see if we will have a footnote to this report.

Source: Ethanol: Higher Emissions or Lower? FactCheck.org, by Brooks Jackson, November 23, 2015