In The Oil Patch – Episode 109: host Kym Bolado and her cohost Alvin Bailey welcome our associate editor of SHALE Oil & Gas Business Magazine and resident politics/energy expert, David Blackmon back onto the show. This week’s show is completely focused on OPEC and the recent agreement they reached to extend the oil production output cut.
I recently appeared on In the Oil Patch Radio with host Kym Bolado. We spent the hour discussing the tension between OPEC and U.S. Shale producers, and the prospects for an extension of the OPEC/Russia agreement to limit exports for the 2nd half of 2017.
- More than 200 U.S. energy companies filing for bankruptcy in less than 2 years;
- A commodity price about half of what it was 3 years ago;
- Rig count half of the 2014 level;
- An industry just now beginning recover from large layoffs during 2015 and 2016.
If the current state of the U.S. upstream oil and gas industry is what an industry looks like when it has “won” a war, then let’s not have any more wars, OK?
But that’s exactly what some in the energy-related news media would have you believe: that the U.S. shale industry has succeeded in staring down the OPEC cartel’s effort to put it out of business and emerged victorious. Several readers contacted me and ask me if that was not in fact the bottom line of the piece I posted last Friday, titled “OPEC Still Fundamentally Misunderstands U.S. Oil Industry.”
Well, no, that was not the point, but since some took it that way, I guess a fuller explanation is in order.
The point of that previous piece – one of the main points, anyway – was that the U.S. shale industry had survived fairly intact from an effort to kill it off. Still standing three years after the assault began, the industry is now leaner , more efficient, able to extract much higher volumes of oil from the same formations than it had been, and better equipped to withstand any future shocks, whether naturally occurring or artificially derived.
A new report from OPEC estimates that crude oil production from non-OPEC nations will increase by 950,000 barrels per day during 2017. This is a dramatic increase from last month’s estimate of a non-OPEC rise of 580,000 during the year.
This new, much higher estimate has raised concerns within the OPEC cartel that its efforts to balance the global supply/demand equation will require it to either extend its current production limitations into 2018, or to agree to even deeper cuts in its member countries’ own production levels. Based on these concerns, the new report urges all non-OPEC nations to limit their own production:
A large part of the excess supply overhang contained in floating storage has been reduced and the improvement in the world economy should help support oil demand. However, continued rebalancing in the oil market by year-end will require the collective efforts of all oil producers to increase market stability, not only for the benefit of the individual countries, but also for the general prosperity of the world economy.
The report singles out U.S. shale producers as the main culprit for the lingering over-supply situation. This is not surprising, given that overall U.S. oil production has risen by a whopping 800,000 bopd since last October, as U.S. producers have activated more than 250 new drilling rigs and implemented higher drilling budgets for 2017.
This expectation that U.S. producers are somehow going to join together with the national oil companies and controlled markets of OPEC, Russia and other countries to intentionally limit production betrays the same fundamental misunderstanding of the nature of the U.S. oil and gas industry that created the global supply glut and resulting price collapse in the first place.
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.
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.
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.
Hey, guess what? There’s a bunch of natural gas out there along the Texas and Louisiana Gulf Coast!
That’s what the US Geological Survey (USGS) announced on April 13, with its assessment that the combined Haynesville and Bossier shales, sandstones and carbonates contain a gigantic volume of natural gas, which the USGS estimates at a total of 304 trillion cubic feet (tcf) in place. That represents enough natural gas to supply country’s entire demand for natural gas for about 12 years, just from two formations, and it represents a 330% increase over the agency’s 2010 resource estimate.
As USGS noted, the formations also contain a very large volume of oil and natural gas liquids:
The Bossier and Haynesville Formations of the onshore and State waters portion of the U.S. Gulf Coast contain estimated means of 4.0 billion barrels of oil, 304.4 trillion cubic feet of natural gas, and 1.9 billion barrels of natural gas liquids, according to updated assessments by the U.S. Geological Survey. These estimates, the largest continuous natural gas assessment USGS has yet conducted, include petroleum in both conventional and continuous accumulations, and consist of undiscovered, technically recoverable resources.
The updated estimate is a part of an ongoing USGS program to re-visit many of the largest oil and gas producing basins in the country, in order to create a more accurate picture of the resource available for the nation’s use as we move into the future. The agency previously released an updated estimate of oil contained in the Wolfcamp formation in the Permian Basin, which I analyzed last November. This is an important exercise designed to better inform public policy decisions related to energy, especially given the amount of ridiculous mis-information that gets into the media every day, such as the always-present but never correct “peak oil” and “peak gas” theories.
“May you live in interesting times,” goes the old Chinese curse. It’s a curse that we all would like to avoid in our lives, since history tells us the most interesting times we experience tend to be ones of conflict and chaos of one form or another.
Jeff Miller, the President and Chief Environment, Health and Safety Officer for Halliburton, knows better than most what it means to live through such times. Having spent the last two decades serving in a variety of leadership roles for one of the world’s largest oilfield service firms, he has experienced all manner of interesting times in an array of locations across the globe.
For Miller, who spent his younger years as a PRCA calf roper, this is not his first rodeo. But the last two years, as the price of crude oil has crashed on the world market, have been especially interesting for him, and for Halliburton.