Tag Archives: #TexasOilProduction

Oil Markets Rebalance On Strong Demand

 Issue 106 – Oil Demand Strong

Introduction…World oil demand will grow more than expected this year, helping to ease a global glut despite rising production from North America and weak OPEC compliance with output cuts, the International Energy Agency said on Friday.

The 2017 demand growth forecast to 1.5 million barrels per day (bpd) from previous month report of 1.4 million bpd.  The report said it expected demand to expand further next year.

OPEC is cutting output by 1.2 million bpd. while Russia and other non-OPEC producers are cutting production by 600,000 bpd until Mach 2018.

Compliance by OPEC cuts in July fell by 75%, the lowest level since cuts began in January according to the IEA.

The net result is the overall oil supply in July rose by 520,000 bpd which is 500,000 bpd abovet last year’s levels.

The strain on oil producers to support oil prices as the non-OPEC output is expected to expand by 0.7 million bpd in 2017 and by 1.4 million bpd in 2018.  There are strong gains in U.S. production as we are not participating in the output caps.

In conclusion…Strong oil demand growth is helping to clear the excess oil inventories in industrialized nations in both June and July.

Source: Dmitry Zhdannikov, “IEA Says strong oil demand growth helping market rebalance,” Reuters, 11 Aug 2017.

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

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.

Dumping Billions In Canadian Assets For Premian Basin

Permian Basin Assets Replaced Canadian Assets

Introduction…Marathon Oil (NYSE: MRO) is selling its Canadian subsidiary, including the company’s 20 percent non-operated interest in the Athabasca Oil Sands Project, to Royal Dutch Shell PLC and Canadian Natural Resources Ltd. for around $2.5 billion in cash, according to a March 9 release.

Additionally, Marathon scooped up 70,000 acres in the Permian Basin from Midland, Texas-based BC Operating Inc. in a deal worth about $1.1 billion, per the release. That includes about 51,500 acres in the Northern Delaware Basin portion of the Permian.

According to the Wall Street Journal, Shell announced it’s selling all of its Canadian oil-sands projects for around $7.25 billion. Shell will keep a 10 percent interest in Athabasca with Canadian Natural (NYSE: CNQ). Meanwhile, Irving, Texas-based rival Exxon Mobil Corp. (NYSE: XOM) recently said production wasn’t profitable in the region and removed around 3.3 billion barrels of oil from its stated reserves, much of which was attributed to the oil sands, the WSJ reports.

In conclusion... Canadian oil sands are falling out of favor with majors due to its high production costs.  On the other hand, Permian Basin oil and gas production is highly favored due to its relatively low production cost and its well established iinfrastructure .

Permian Basin is also favored by our partners who are purchasing saltwater disposal wells due to increased production of water from the new oil production.

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.

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.

On Saudi Pledge Oil Climbs To 17-Month High

Bloomberg: Non-OPEC Producers Join Deal to Cut Production

Introduction:  Largest oil producers strengthen commitment to tighten supply, Non-OPEC countries agree to trim output 558,000 barrel per day next year.

Oil advanced to the highest since July 2015 after Saudi Arabia signaled it’s ready to cut output more than earlier agreed and non-OPEC countries including Russia pledged to pump less next year.  WTI closed Monday at $52.83 P/B.

Futures climbed 2.6 percent in New York and 2.5 percent in London. Saudi Energy Minister Khalid Al-Falih said Saturday the biggest crude exporter will “cut substantially to be below” the target agreed on last month with members of OPEC. His comments followed a deal by 11 non-OPEC countries to join forces with the group and trim output by 558,000 barrels a day next year, the first pact between the rivals in 15 years.

U.S. oil futures have gained almost 20 percent since the Organization of Petroleum Exporting Countries agreed on Nov. 30 to cut output for the first time in eight years. Saudi Arabia, which initiated OPEC’s decision in 2014 to pump without limits, is leading efforts to regain control of the market. The OPEC and non-OPEC plan encompasses countries that produce about 60 percent of the world’s crude.

OPEC Collaboration…”The main impact of the non-OPEC collaboration is to pull the global market into balance, if not in deficit, in the second quarter of 2017, rather than in the third quarter,” said Sarah Emerson, managing director of ESAI Energy in Wakefield, Massachusetts. “On an annual average basis, this pushed the global balance into a 200,000 to 300,000 barrel-a-day deficit for the year.”

Oil prices at $60 a barrel would be “ideal” for OPEC as higher levels risk sparking a recovery in competing supplies from the U.S., Nigerian Minister of State for Petroleum Emmanuel Kachikwu said in a Bloomberg Television interview.

Conclusion…U.S. exporters rushed back to the shale patch with the largest weekly addition of oil rigs since July 2015 according to Baker Hughes.  OPEC deal cous drain almots half of the global oil surplus.

Sources:  Mark Shenk, Oil Climbs to 17-Month High on Saudi Pledge, Non-OPEC Output Cut, Bloomberg, December 11, 2016; Gran Smith, OPEC-Russia Deal Could Drain Almost Half the Global Oil Surplus, Bloomberg December 12, 2016; Non-OPEC oil producer to cut output 558,000 barrels a day, CNBC, December 10, 2016

Permian Basin Rig Count Explodes

Apache Corp. Drilling In Andrews County, TX

Introduction…The most attractive oil exploration and production region in the United States and perhaps the world has added 101 active drilling rigs since just May 13, 2016. That’s a giantic 84% gain in rigs in just in seven months.

The Permian basin in West Texas and southwestern New Mexico which is 250 miles wide and 300 miles long has become the most attractive drilling region due to the major infrastructure that reduces time and expense to getting oil and gas to the market.

The first commercial oil well in the Permian Basin was completed in 1921 in Mitchell County, on the east side of the basin; completed at a total depth of 2,498 feet, it was the discovery well of the Westbrook field.

With the coming of World War II the need for oil was urgent, and it became economically justified to drill more and deeper tests.

The entire Permian Basin during 1966 produced a total of 607 million barrels of oil and 2.3 trillion cubic feet of gas for a total of $2 billion. A cumulative total of 11.3 billion barrels of oil had been produced.

Conclusion...Intrastate and interstate gas pipeline systems were expanded throughout the area, and Midland-Odessa was the headquarters for the oil and gas industry in the Permian Basin area. Hundreds of millions of dollars have been spent on petrochemical refineries and supplemental construction work in the Permian Basin, which was rated the largest inland petrochemical complex in the United States. Is it no wonder the Permian basin is the most attractive oil exploration and production region in the United States and perhaps the world?

Take away...One business that benefits greatly from the new oil exploration and development is the saltwater disposal wells. These properties tend to have a consistent cash flow and a short payback period. Drop me a note if this intrigues you.

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