Energy Week, Episode 7: Covering the Oil and Gas Landscape With Allen Gilmer
David and Ryan were happy to welcome DrillingInfo Chairman Allen Gilmer to the show. The show begins with a discussion about DrillingInfo’s recent acquisitions and the services it provides to a wide variety of clients. The discussion then moved to a recently-released study from MIT which theorizes that the U.S. Energy Information Agency is over-estimating the potential for oil and gas recovery in U.S. shale plays, a thesis with which Allen strongly disagrees. Next, Ryan and David asked Allen about his views about the Eagle Ford Shale and its potential, before moving to a similar discussion about the Permian Basin. The show closes with Allen giving listeners his views on the outlook for natural gas this winter and in the coming years.
Links to Articles Referenced in this Episode:
MIT Study Suggests U.S. Vastly Overstates Oil Output Forecasts
After 2.5 Billion Barrels, Eagle Ford Has More Oil Coming
Gilmer: We Should View The Permian Basin As A Permanent Resource
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Bloomberg carried a report late last week titled “Goldman Says Oil Market’s Too Jittery When There’s No Need to Be.” The report summarized a memo from Goldman Sachs analysts positing that the just-completed extension of the deal between OPEC and Russia to limit oil exports “indicates a reduced risk of both unexpected increases in supply as well as excess draws in stockpiles.”
The report didn’t address the reality that one of the main reasons why the crude markets remain jittery is very likely due to all the conflicting reporting in the energy-related news media leading up to that extension. While there was never any real, firm reason to doubt the extension would get done, pretty much every day in November was filled with speculative stories with click-bait headlines expressing doubts the parties could reach agreement.
While this is just the nature of the U.S. news media in general these days, the reality is that there has been precious little volatility in crude prices throughout the second half of 2017. In fact, on June 19, I wrote the following:
The mid-year review processes [for corporate upstream companies] I mention there are now coming to conclusions, and as a result of those reviews, we can expect the domestic rig count to level off and even perhaps decline slightly over the second half of 2017.
That’s exactly what has happened as these large independent producers scaled back their drilling budgets for the second half of this year, and it’s the main reason the frequent ups and downs in crude prices that had characterized the previous two-plus years have been replaced by what has been a steady rise in prices over the last five months. The key understanding to grasp in this equation is that, on the global stage.
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In this episode, David and Ryan why the oil market seems overly jittery now that it appears the market is back in balance after three years of chronic over-supply. They also discuss how super tankers co-loaded with crude from both the U.S. and Mexico have helped open up Asian markets to U.S. producers, why solar really isn’t cheaper than coal despite all the hype in the media, and celebrate the fact that Shell has now restored its full cash dividend thanks to its strengthening bottom line.
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It has been a year now since we all awoke on Nov. 9, 2016, to the reality that, against all odds and all predictions by the polls and political “experts,” Donald J. Trump had somehow defeated Hillary Clinton in the race to become the 45th President of the United States. It was a stunning outcome to a seemingly endless campaign, one that had turned into the most vicious and personal presidential contest in modern times.
The oil and gas industry had not supported Trump’s candidacy during the Republican Party’s primary and nominating process, when most contributions from industry executives and company employee PACs flowed to more conventional politicians like Wisconsin Gov. Scott Walker, former Florida Gov. Jeb Bush, and Sens. Ted Cruz of Texas and Marco Rubio of Florida. The same held true in the general election, during which the vast majority of contributions from industry executives flowed to Clinton.
Despite that slight, Trump made the promotion of policies that support a healthy oil and gas industry a centerpiece of his campaign strategy from beginning to end. During his speeches, the primary and general election debates, and the hundreds of rallies he conducted before crowds of thousands of supporters, candidate Trump talked about issues all too familiar to those in and around the nation’s oil patches: the Keystone XL and Dakota Access pipelines, EPA’s Waters of the United States regulatory scheme, the Clean Power Plan and the Bureau of Land Management’s (BLM) hydraulic fracturing rule.
At a September 2016 rally in Pittsburgh, Trump made a speech that was very typical to what he said throughout his campaign: “I am going to lift the restrictions on American energy and allow this wealth to pour into our communities — including right here in Pennsylvania. The shale energy revolution will unleash massive wealth for American workers and families.”
It was an extraordinary thing. No candidate in modern times from any political party had worked so hard to make energy in general, and the oil and gas industry specifically, such a major part of his or her campaign’s messaging. When seeking support from the oil and gas industry and many others, though, Trump turned off many people with his rhetoric and antics on other matters. His unpredictability made millions of Americans simply uncomfortable with the idea of having this person occupying the highest office in the land. This factor remains true a full year after his election.
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Episode 5 – Debating energy-related issues based on facts and reality rather than hyperbole
Show Notes: In this episode David and Ryan discussed the pending deal between Russia and OPEC to extend their export limitation agreement through the end of 2018, and how crucial that deal is for the direction of crude oil prices on the global market. Also discussed: natural gas production in the Permian Basin; what’s next for the Keystone XL Pipeline; the ongoing revival of Alaska’s oil and gas industry; and why renewables won’t be crowding fossil fuels out of the energy markets anytime soon.
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Energy Week, Episode 4: Why the majors aren’t worried about “Peak Oil” but the markets are worried about events in Saudi Arabia.
Show Notes: In this episode, David Blackmon and Ryan Ray discussed how the ongoing upheaval in Saudi Arabia is impacting oil markets, and the impacts it all could have on the planned IPO for Saudi Aramco. Next, they talked about the reasons why the various “Peak Oil” theories and narratives are wrong, and why the big oil companies aren’t really worried about them. Finally, David talked about the reasons why he thinks the U.S. industry just might not mess up the current positive oil price situation in 2018.
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Links to articles referenced in Episode 4 of Energy Week:
Power grab in Saudi Arabia threatens oil market stability
“End Of Oil” Narratives Are Misleading
Peak oil? Majors aren’t buying into the threat from renewables
Oil Pulls Back After U.S. Rig Count Sees Significant Increase
Why U.S. Oil Producers Might Not Mess Up A Good Thing In 2018
A good friend of mine who runs the government affairs shop at a large independent producer has a favorite saying: You can always count on the oil and gas industry to mess up a good thing. The last time he said that to me was about this time a year ago, when it was apparent that, after a terrible year during which the oil price for West Texas Intermediate (WTI) had sunk as low as $26/bbl, the price would top $50 by the end of the year in the wake of the agreement between OPEC, Russia and several other non-OPEC nations to curtail exports.
We were discussing the probability that, in response to that higher commodity price, the upstream segment of the industry would respond by activating a large number of idled drilling rigs early in 2017 and drill its way right back down to a lower price. Which, of course, is exactly what happened: The industry brought more than 200 additional rigs online during January and February, and another 100 or so during the next couple of months, and the market responded by trading for WTI at $43/bbl by the end of April, even as OPEC and Russia reported high levels of compliance with their lower production quotas.
Now here we are, coming toward the end of another year, and once again we have a situation in which crude prices are ramping up to an even higher level, thanks to steadily rising demand, anticipation that OPEC and Russia will renew their export agreement through 2018, and other favorable market signals. One of those other favorable signals is the fact that the rig count in the U.S. has fallen off by about 70 rigs in the last seven weeks, as shale producers have executed on more conservative drilling budgets during the second half of the year. As a result, the rate of increase in overall domestic oil production has basically leveled off at levels the market can absorb.
So will the U.S. industry mess up a good thing again in 2018? It might surprise my good friend that this time I don’t think it will, at least not to the extent that it did over the first half of 2017. This view could change by the end of December, but right now there are several factors that indicate that, while drilling will definitely pick up again after January 1, it will be a more muted response than we saw this year.
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In Episode 2 of Energy Week, David Blackmon and Ryan Ray discuss current dynamics with the domestic rig counts and prices, and the implications they pose for the rest of this year and into 2018. Other topics of discussion include:
- Why electric vehicles still aren’t making a dent in U.S. demand for gasoline-powered cars;
- The heinous abuse of the court system by a professional protester who caused a riot a year ago at the site of the Dakota Access Pipeline; and
- Blackmon’s Forbes article advocating for an increase in the federal gasoline tax.
In news that is certain to upset adherents to the never-dying cult of Peak Oil, IHS Markit released a study on Sept. 25 indicating that, per their analysis of data from more than 440,000 oil wells in the Permian Basin, the basin still has somewhere between 60 and 70 billion barrels of producible oil to give up in coming years. That’s not exactly the “near-infinite resource” view of the Permian held by Allen Gilmer and his staff at DrillingInfo, but it certainly supports the notion that the basin will remain a very active area for oil and gas development for decades to come.
“The Permian Basin is America’s super basin in terms of its oil and gas production history, and for operators, it presents a significant variety of stacked targets that are profitable at today’s oil prices,” Prithiraj Chungkham, director of unconventional resources for IHS, said in the statement.
The IHS Markit study is the latest in a string of resource estimates in the past year that have produced a growing understanding of the true magnitude of the resource in place in the Permian. Last November, the U.S. Geological Survey (USGS) issued its own resource estimate that a single formation in the Permian, the Wolfcamp Shale, contains 20 billion barrels of technically recoverable oil, by far the largest such estimate ever issued for any single formation by the USGS. Most in the industry understand that this is actually a conservative resource estimate because USGS limits its resource assessments to reserves that are producible using current technology. Given that technology advances in the oil and gas industry every day, such estimates, while useful markers, are out of date before they are even released.
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