Tag Archives: #Fracking

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

Past Energy Independence To Global Dominance

 Trump Signs Order To Expand Offshore Driling

Introduction…May 1, 2017 President Trump signs order to expand offshore drilling.  That day the President said, “Our country is blessed incredible natural resources including abundant offshore oil and gas reserves.  But the Federal Government has kept 94% of these reserves closed to exploration. This deprives our country of thousands of jobs and billions of dollars in wealth…This executive order begins the process of opening offshore areas to energy exploration.  It reverses the previous administrations Artic leasing ban…This helps create a much brighter future for our country…This is a very important day.”

U.S. Energy-dominant…The U.S. is in the position to be energy-dominant, not just independent, thanks to fracking and plans to loosen drilling regulations, Interior Secretary Ryan Zinke said (last) Monday.

Oil production across the U.S. may increase by 17 percent to a record 10.24 million barrels a day by the end of next year as companies cut costs and become more efficient in drilling, especially in areas such as West Texas and North Dakota. Domestic output hasn’t surpassed 10 million barrels a day since 1970. At a time when OPEC and other producers are cutting output, U.S. exports surged above 1 million barrels a day for the first time.

In conclusion…“In 1983, I was told we’re going be out of oil and fossil fuels definitively in 2003. That’s not true,” Zinke said at the Offshore Technology Conference in Houston. “And, you know, I always say God’s got a sense of humor — he gave us fracking. And fracking is a game-changer — certainly a global game-changer.”

Source: Laura Blewitt, “Trump’s U.S. Looks Past Energy Independence to Global Dominance,” Blomberg, 1 May 2017

The Water Contamination By Fracking Myth

YaleStudy

The Myth Has Been Disproved

Yale researchers have confirmed that hydraulic fracturing – also known as “fracking” – does not contaminate drinking water.

The process of extracting natural gas from deep underground wells using water has been given a bad reputation when it comes to the impact it has on water resources but Yale researchers recently disproved this myth in a new study that confirms a previous report by the Environmental Protection Agency (EPA) conducted earlier this year.

After analyzing 64 samples of groundwater collected from private residences in northeastern Pennsylvania, researchers determined that groundwater contamination was more closely related to surface toxins seeping down into the water than from fracking operations seeping upwards. Their findings were recently published in the journal Proceedings of the National Academy of Science.

Researchers from Duke University also recently gave people a reason to trust fracking companies. In a study published in Environmental Science & Technology Letters, scientists explained that hydraulic fracturing accounts for less than one percent of water used nationwide for industrial purposes. This suggested that the natural gas extraction processes are far less water-intensive than we previously thought.

It’s hoped that these studies will help people better understand the safety of fracking.

In conclusion, underground drinking water contamination myth has been disproved by the Yale researchers which confirmed a previous report by the Environmental Protection Agency.

Why U.S. Oil Production Hasn’t Declined

H&P Drilling Rig Midland, TXMidland, Texas Drilling Rig

Introduction…Oil prices drop below the floor at the $50 per barrel has caught some by surprise.  The reason has been that the lower prices haven’t translated into lower production yet as was expected last fall.

 

Drilling Rig Count Dropping…We have 684 fewer drilling rigs operating in the U.S. on March 13th as compared to a year ago.  The primary reason for the failure of production to decline is the average oil rig has become much more efficient, enabling drillers to produce more with less. That meant that the most inefficient rigs were taken off the market first. Also, exploration companies, especially ones with cash flow problems, kept up drilling to keep the money rolling in, even if they were selling oil for half of what they were last year.

 

Some Shale Production To Decline…The Eagle Ford in South Texas, the Niobrara in Colorado, and the Bakken in North Dakota are expected to see their combined production fall by 24,000 barrels per day in April. However, the offset is the Permian basin in West Texas is projected to see more than a 21,000 barrel-per-day increase in April, offsetting the declines elsewhere. This means that overall U.S. output probably won’t drop off quite yet.

 

In conclusion…Meanwhile, oil prices are in freefall once again, falling to fresh lows. WTI is flirting with the possibility of dipping below the $40-per-barrel level, which will bring worse panic to the sector. In a sign that the pain is mounting, Quicksilver Resources, a Texas-based oil and gas company, announced on March 17 that it has declared bankruptcy.
Until we see stability in oil pricing, it’s difficult to price new drilling programs.  While we are waiting, we see other projects with significant cash flow available.  Let me know what you interest level may be if any.

 

Sources: “Is US Oil Production Finally About To Fall?” OilPrice.com, Charles Kennedy, March 18, 2105