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The Oil And Gas Situation – New Price, Production, Policy, Pipeline Targets Arise

Some thoughts on the domestic oil and gas situation as we move into May…

More rigs, more jobs, more drilling, but for how much longer…:  As I pointed out at the beginning of April, the U.S. oil and gas industry added more than 200 new active drilling rigs during the first quarter of 2017.  The pace of new rig activation slowed somewhat during April, but the count continued to rise as a total of 46 new rigs came online during the month.  The current U.S. domestic rig count of 870 is more than double the count of 420 at the end of April, 2016.

It will be interesting to see how much longer this upwards trend in the rig count will continue, given the softening oil price.  The corporate upstream companies have now implemented their capital plans for the first half of 2017, and are beginning the process of evaluating how those plans should be adjusted for the second half of the year.  The rising drilling activity and increasing demand for service companies and their products has predictably resulted in corresponding increases in service costs.  One would expect that, combined with a sub-$50 oil price, to result in a leveling off and possibly even a falling rig count for the last two quarters of the year.

But so much of that depends what OPEC does.: Will OPEC extend its current agreement to curtail production, which expires on June 30, or won’t they?  The answer to this question, more than any other single factor, will determine where the price of crude goes, and thus where the U.S. rig count and drilling budgets go for the second half of 2017.

 The 2017 capital budgets for the majors and the large independent producers who drill the great majority of wells in the U.S. were put into place in anticipation of a crude price at or above $50/bbl.  But the price for West Texas Intermediate (WTI) has recently fallen below that level due in large part to uncertainty about where OPEC will head beginning July 1.

 

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President Trump’s First 100 Days In Oil And Gas: Elections Really Do Matter

President Donald Trump’s 100th day in office is this Saturday, and the debate is raging about what he has or has not accomplished during that short period of time, which in the past has traditionally been a sort of “honeymoon” period for new presidential administrations.  It’s highly debatable whether or not this particular President received any sort of honeymoon at all, since such periods in the past have involved semi-favorable coverage from the press and a good deal of cooperation from congress, but that’s another subject for another writer.

My mission here at Forbes.com is to talk about public policy related to energy in general, and oil and natural gas in particular.  Focusing strictly on that area of policy, it seems to me that President Trump, through his 98th day in office, has already become the most impactful president in my lifetime , which, since I’m pretty old, goes back to Dwight D. Eisenhower.

Shortly after he took office in 2009, former President Barack Obama famously told the Republican congressional leaders, “Elections have consequences, and at the end of the day, I won.” Those words are as true today as they were then, and those who deal with public policy matters in the oil and gas industry are finding out that the 2016 election mattered in a really big way.  You might even say it was “Yuge”.

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In The Oil Patch – Mathusi Pahl (ep. 107)

In The Oil Patch – Episode 107: host Kym Bolado and her cohost Alvin Bailey caught up with Mothusi Pahl, Senior Vice President of Alphabet Energy! Mothusi and his team have taken huge strides in converting oilfield flares into a usable and extremely efficient energy source. You have to hear this interview!

As always, we also have our associate editor of SHALE Oil & Gas Business Magazine, David Blackmon with us to give us pertinent updates concerning the oil & gas industry.

Listen to the Podcast Here

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Gov. Cuomo Proves Pipeline Politics Aren’t Limited To DAPL

As crude oil from the Bakken region began to flow into the Dakota Access Pipeline (DAPL) in mid-April, Reuters carried a story indicating that the largest refiner on the East Coast will no longer be taking delivery of Bakken crude via rail:

“It’s the new reality,” said Taylor Robinson, president of PLG Consulting. “Unless there’s an unforeseen event, like a supply disruption, there will be no economic incentive to rail Bakken to the East Coast.”

Thus, the DAPL has already begun to improve the economics of drilling for and producing oil from the Bakken Shale, whose rig count has begun to rise over the last few months.  And while the aggressive and often-violent protesters who spent half a year opposing the project’s completion would never admit it, DAPL is also already improving the safety of moving Bakken crude out of the basin to be sold and refined.

While rail companies and regulators have moved in recent years to improve the safety aspects of shipping crude by rail following several high-profile incidents, the truth remains that pipelines are far and away the safest means of moving crude oil to market.  Rail will remain a part of the transportation mix for Bakken oil – it represented about 25% of that mix during February of this year – but its market share there will grow smaller in the coming months.  That’s a positive for producers, refiners and the public.

Unfortunately, the good news about oil and gas pipeline safety has apparently not made its way to the governor’s office in Albany , where Andrew Cuomo continues to cost his constituents billions of dollars each year through his efforts to obstruct the building of needed natural gas pipelines in the Empire State.   Gov. Cuomo is of course most famous for orchestrating a statewide ban on hydraulic fracturing, a ban that has denied New Yorkers to share in the riches provided to Pennsylvanians, West Virginians and Ohioans by the massive Marcellus Shale resource, which also extends into Southwestern New York.

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Thank Mother Earth for Oil, Natural Gas and Other Fossil Fuels

[Note:  I posted this piece at Forbes.com on April 22, 2013, but it remains relevant today.]

Today is Earth Day, and it is very likely that the fact that abundant fossil fuels like oil, natural gas and coal, are natural resources, and gifts to humanity from Mother Earth herself  will be lost amid all the frightful doom and gloom predictions that will be launched by environmental activists and repeated by various media outlets.

All the vitriol thrown at these fossil fuels by the environmental community notwithstanding, it is a simple fact that our prosperous, modern, energy-hungry society was made possible by the existence of these fuels.  Without the discovery of and ability to produce fossil fuels, it is likely that mankind would still be mired in a Medieval form of existence, reliant on burning wood for heat, horses for transportation, and still living largely in the dark after nightfall.

But what about wind, solar and nuclear?  The production of modern wind turbines, solar panels and nuclear power plants are extremely energy-intensive enterprises, and are by and large powered by the burning of fossil fuels.  In other words, without the massive energy levels generated by the fossil fuel chicken, the “green” energy eggs would not have been possible.

 

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In The Oil Patch – Omar Garcia (ep. 104)

If you want to keep current on what’s happening in oil and gas in Texas, the “Inside the Oil Patch” program airs every Sunday evening on AM 740 KTRH in Houston, and AM 550 KTSA in San Antonio. The show is sponsored by Shale Magazine, for which I am an associate editor. I do a ten minute segment on most of the shows. The hosts, Kym Bolado and Alvin Bailey, do a great job of putting together high quality guests and very informative shows.

Listen to the Episode Here

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The Oil And Gas Situation: The Rigs Just Keep On Coming

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Some thoughts on the domestic oil and gas situation as we move into April…

The rigs just keep on coming…:  The industry activated more than 70 additional drilling rigs during the month of March, bringing the total new rigs activated during the first quarter of 2017 to more than 200.  My “bold” prediction as the year began was that it would take four months, not three, for the U.S. industry to bring that number of new rigs onto the market.  So, ok, I was too timid.

Interestingly, more than a dozen of these newly-active rigs have moved into the Haynesville Shale region, which is experiencing a somewhat surprising resurgence of activity, even in the seemingly interminable weak price market for natural gas.  The play’s abundance of pipeline takeaway capacity and proximity to major export facilities are two of the main reasons for this uptick in activity, as detailed by Forbes contributor Jude Clemente in his piece of March 25.

March’s increase in rigs drilling for oil was also less focused on the Permian Basin than in prior recent months, with other basins like the Eagle Ford, the SCOOP/STACK and the DJ Basin also seeing significant upticks in activity.  How much longer this rising rig count can last is anyone’s guess, but it was a major reason why…

 

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President Trump’s Latest Energy Executive Order Is Not Just About Coal

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An interesting facet of the news media’s coverage the past couple of days about President Trump’s Executive Order on Promoting Energy Independence and Economic Growth (hereinafter referred to as “Order”) is that the coverage focused mostly or entirely on the Order’s impacts on the U.S. coal industry and coal-related jobs.  Granted, the Order was cast as the President’s effort to essentially rescind major parts of former President Obama’s “Clean Power Plan”, which most recognize was an effort by his Administration to damage the nation’s coal industry.  But just as the “Clean Power Plan” had impacts and produced major regulatory efforts that reached far beyond the coal industry, President Trump’s newest executive order also impacts other segments of the nation’s energy sector.

Some major aspects of the Order contain significant implications for the oil and natural gas industry as well.

Here is a review of several of them:

  • Section 2 of the Order directs all relevant agencies to “review all existing regulations, orders, guidance documents, policies, and any other similar agency actions (collectively, agency actions) that potentially burden the development or use of domestically produced energy resources, with particular attention to oil, natural gas, coal, and nuclear energy resources.”   This is a very broad-ranging mandate that, when combined with other aspects of the Order, is likely to create a vast array of proposed regulatory rescissions and reforms.

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