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Technology Is A Huge Driver Of The U.S. Oil And Gas Boom

Today’s Energy Update
(Because Energy Fuels Our Lives)

In the world of oil and natural gas, engineers, geologists, and drilling and production departments tend to get the lion’s share of the credit when good things happen, and most of the blame when they don’t. That’s fair, given the crucial roles these groups of employees play within the thousands of companies that make up the U.S. oil and gas industry.

But in recent years, as overall domestic production has risen at a pace no one could have foreseen even five years ago, the credit has begun to shift. These human resources remain indispensable to the success of any company, but the deployment of a raft of advancing technologies has played an ever-advancing role over time in enabling companies to maximize recoveries and profits.

Advanced-intelligence (AI), machine-learning applications constitute one area of technology that is obtaining widespread use throughout the industry. Unplanned equipment outages and the resulting loss of production cost companies billions of dollars every year. Any technology that can help avoid such outages can have a major, positive impact on a company’s bottom line.

Last December, I wrote about one machine-learning tool – PRT, a recent acquisition of DrillingInfo – that enables companies to significantly reduce their electricity costs by accurately predicting weather and wind patterns up to two weeks in advance. Given that electricity is the single largest element of lease operating expenses industry-wide, that’s a big deal.

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Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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The Permian Strategic Partnership Is Now Fully Operational

Today’s Energy Update
(Because Energy Fuels Our Lives)

Tracee Bentley has a big job on her hands. Fortunately, as she pointed out in my interview with her on Wednesday, she’s going to have a lot of help.

This past Monday, March 18, was Bentley’s first day on the job as CEO of the Permian Strategic Partnership, the non-profit organization formed last fall by 20 of the largest producers in the oil and natural gas-rich Permian Basin of West Texas and Southeast New Mexico. As I noted back in November, the formation of this new organization is both timely and much-needed:

The Permian Basin is just the latest example of how this industry’s operations can strain a region’s infrastructure and vital service systems. A heavy influx of new, mostly child-bearing age workers, thousands of heavy trucks rolling down county roads and over city streets, dust, noise and traffic jams, all taking place in a region of West Texas and Southeast New Mexico typified by smaller communities will inevitably lead to changes in the quality of life that are upsetting to many residents and community leaders.

These are exactly the kinds of regional issues the Permian Strategic Partnership (PSP) was created to help the area’s communities address. The organization’s website lists its key priority areas of focus this way: “By partnering with local leaders, we will work hard to make roads safer, improve schools, upgrade healthcare, increase affordable housing, and train the next generation of workers.” The member companies are dedicating a lot of scratch to this effort, with an initial commitment of more than $100 million to be directed towards specific projects in the region.

When asked about how the PSP will go about directing these funds and its efforts, Bentley is quick to emphasize the word “partnership”: “We don’t want people to think that we’re just going to come in and take over. That’s not good for anybody, and the oil and gas business is not in the construction business, so to speak, when it comes to things like schools and roads.  But what we are really good at is partnering with communities. We do it every day across the basin on so many different things.”

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Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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ExxonMobil, Chevron: Turning The Permian Into A Manufacturing Operation

Today’s Energy Update
(Because Energy Fuels Our Lives)

The exploration for oil and natural gas has always been among the most risky propositions in the business world. The major risk today, in the new age of shale, revolves around raising capital and satisfying investors, but throughout the 19th and 20th centuries, the bigger risk centered on finding the pockets of oil and gas contained within conventional sand and limestone formations.

This was often a very tricky proposition, and the drilling of dry holes outnumbered the successful wells in many major play areas. The tales are legion of the independent producers who went flat dead broke before ever managing to drill a producing well. “Dad” Joiner, the promoter and ultimate driller of the Daisy Bradford No. 3 – the first successful well completed in the mammoth East Texas Field on October 3, 1930 – famously went broke half a dozen times and required an influx of capital from H.L. Hunt before finally bringing in his gushing discovery well.

That dynamic all began to change in the late 1980s with the discovery and development of unconventional formations like the Fruitland Coal in the San Juan Basin of New Mexico. Operators like Burlington Resources, Amoco and Devon Energy (DVN) soon realized that, once the geographic extents of the formation had been fully delineated, the risk of drilling dry holes soon diminished to near-zero. Once that determination had been made, you drilled a vertical well, conducted a smallish hydraulic frac job and de-watered the surrounding rock to cause the methane gas to be released from the coal.

At that point, the main considerations became how to re-use, dispose of or sell the largely-potable water that came up out of the wells, and building out the necessary transportation and processing infrastructure needed to get it to market. Once those concerns had been addressed, these companies and many others found themselves in what was essentially a true manufacturing environment

A true manufacturing environment is one that is highly-predictable, consistently repeatable, requires known raw materials (i.e., sand, pumps and frac water), deploys specific infrastructure, and involves the disposition of waste materials. The Fruitland Coal fit every aspect of that definition: Many other unconventional plays soon followed.

Shale plays, once fully delineated, all end up incorporating the same features of true manufacturing operations. Thus, when both ExxonMobil (XOM) and Chevron (CHV) issued this week’s announcements that their companies would deploy a high percentage of their respective capital budgets in the coming years in efforts to dramatically increase their production from their Permian Basin operations, it did not represent a new concept for the U.S. oil industry. It’s just that these two major, fully-integrated companies have the ability to conduct such operations on a far grander scale.

For those who may have missed those announcements, Chevron said it plans to produce 600,000 barrels of oil equivalent (boe) from its Permian operations by 2020, ramping that up to 900,000 boe by 2023. ExxonMobil anticipates being able to increase production from its 1.6 Permian position from roughly 200,000 boe today to 1 million boe by 2024. Both numbers are truly astonishing.

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Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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The Real Existential Threat To America’s Oil Industry Isn’t What You Think

Today’s Energy Update
(Because Energy Fuels Our Lives)

Mark P. Mills published an excellent piece on Feb. 28 detailing why the “Green New Deal” proposed by New York Cong. Alexandria Ocasio Cortez and other Democrats does not represent any sort of existential threat to the oil and gas industry, now or in the future. If you haven’t read this highly-informative piece, you should.

But the reality that “green energy” tech is too limited by the laws of physics to ever hope to displace the internal combustion engine or fossil-fuel-powered baseload electricity generation does not mean that the U.S. industry is free from existential threats. Such threats originate mainly from failures by the industry to universally and effectively address issues that chronically impact and irritate a variety of stakeholders over time.

One of the characteristics that makes the domestic industry so great is the fact that it is not a nationalized, single entity like Mexico’s Pemex or PDVSA in Venezuela. But its status as a business made up of thousands of highly-competitive, private and corporate entities also makes it less able to develop and adopt truly effective, universal solutions to ongoing, chronic issues.

Hydraulic fracturing, or “Fracking”, is a great example. Fracking is literally a technological miracle that has transformed the United States from a country that seemed hopelessly reliant on foreign imports at the turn of the century into one of the world’s largest producers and exporters of both oil and natural gas today. But the industry’s inability to find and adopt ways to make the process less impactful on individual stakeholders and local communities has also led several states – including New York, New Jersey and Vermont – to enact either outright or de facto bans on fracking within their borders.

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Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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Rising Gasoline Prices: 3 More Things To Know

Today’s Energy Update
(Because Energy Fuels Our Lives)

 

After the price for gasoline at the pump had risen over much of the first month of this year, I published a piece in late January detailing seven key factors that go into determining what those prices will be in the United States. Given that gas prices have gone up again in the past two weeks after the first half of February was relatively stable, now is a good time to discuss the reasons why that has taken place.

There are three main reasons for this recent uptick of 13-15 cents per gallon across the country, as follows:

The deteriorating situation in Venezuela – That late January piece in part had this to say about the possible impact on U.S. gas prices due to the looming collapse of the Maduro regime: “Venezuela has been a fairly significant exporter to the U.S. but its volumes have steadily fallen in recent years as its economy has collapsed. U.S. refiners will have to find another source of crude to replace the lost Venezuelan volumes, and to the extent they must pay higher prices to obtain that feedstock, the higher costs will be passed through to the consumer.” This appears to have impacted gas prices to some extent, although no one really seems to have a good handle on how much of the recent price climb is attributable to Venezuela.

Routine refinery maintenance season has begun. – Late February is typically the time of year when many refiners begin taking their facilities temporarily offline for routine maintenance purposes. Refineries are very complex facilities with a high number of moving parts that operate under high temperatures and pressures, in good weather and bad. All of these factors and more require require that the facilities be shut down for a few weeks once or twice each year for routine maintenance.

 

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Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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While Politics Dominates The News, Big Oil Invests In Global Energy Reality

One of the big concerns during the depths of the oil price bust of 2014-2016 was the fact that so many big, integrated and state-run oil companies were delaying or taking a full pass on investing in major and highly-costly international projects. During the financial retrenchment of this dark period, exploration for major new resources consistently took a back seat to finding ways to pay the bills and service the company’s debt.

This lack of investment in new exploration and infrastructure projects led to concerns among many energy analysts that we could be facing a shortage of global supply early in the next decade as decline rates caused existing reserves to play out without the needed new production coming on line to replace them.  The surge in new supply from U.S. shale plays has served to alleviate those concerns for the near-term, and a new report issued by the Norwegian research firm Rystad Energy documents a similar surge in new international investments that should help avoid supply shortages further down the road.

“We expect global FID volumes in 2019 to triple over last year, and 2019’s megaproject awards could lead to billions of subcontracting dollars in coming years,” said Rystad Energy upstream research analyst Readul Islam, “The only supply segment likely to shrink this year is the oil sands, whereas deepwater, offshore shelf and other conventional onshore developments are all poised to show substantial growth. From a geographical perspective, all regions are headed for robust growth except Europe and North America, still bearing in mind that shale plays are not included in these numbers.”

That last point – that shale plays are not included in this report – is key. As I pointed out last week, the Permian Basin has become a focal point for major development not just for big independents like Pioneer Natural Resources, Noble Energy, Apache Corporation and others, but also for major, integrated companies like ExxonMobil, BP, Shell and Chevron. These U.S. shale plays are likely to sustain significant production growth for years to come, giving the big investments documented by Rystad in its report the running room they need to move from final investment decisions to first production, which can easily consume five-to-seven years.

So, if you’ve been wondering why all those stories about concerns of a looming supply crunch on the horizon have disappeared from your daily news clips, this is the reason.

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Talking Gas Prices, Venezuela and OPEC

Yesterday I appeared on BYU Radio’s “Top of Mind” program with host Julie Rose. We had a wide-ranging 20 minute discussion about gasoline prices, America’s shale revolution, the Trump sanctions on Venezuela and the ongoing influence of OPEC over crude oil prices.

Here’s the Link

Enjoy!

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Peak Oil Theory’s No Good Terrible Very Bad Week

Just when you thought continued belief in any of the various brands of “Peak Oil” theory could hardly become less sustainable, you get a week like this one. No matter whether you come at Peak Oil from the supply side or the demand side, several events this week would have had to put you in a definitively sour mood.

Starting off this “No Good Terrible Very Bad” week for the Peak Oilers, UN International Energy Agency (IEA) Executive Director Fatih Birol debunked a popular piece of the demand side of the theory.  Speaking to the World Economic Forum in Davos, Switzerland on January 22, Birol told the delegates that “To say that the electric car is the end of oil is definitely misleading.” Oh.

Birol expanded on that theme by adding emphatically that “Cars are not the driver of oil demand growth. Full stop.” Birol made things even more problematic for those who wish to dramatically accelerate the displacement of internal combustion cars with EVs via massive subsidies for environmental reasons by pointing to the fact that EVs in fact do little to reduce emissions, pointing to the fact that most of the electricity globally is still generated using coal and other fossil fuels. “Where does the electricity come from, to say that electric cars are a solution to our climate change problem? It is not,” he said.

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The Oil And Gas Situation: Eight Predictions For 2019

Well, that all escalated – or rather, de-escalated – quickly, huh? During the course of a six-day vacation around Christmas, the WTI price for crude dropped from $50/bbl down to $42/bbl. That takes a situation on oil prices that was already troubling for most domestic producers into the potentially-calamitous range for companies saddled with heavy debt loads and high lifting costs.

This latest collapse in crude prices comes on the heels of a longer-term drop that lasted throughout October and November. From October 2 through November 30, WTI fell from $76.41/bbl to $50.93, a decline of about 33%, as it became obvious to traders and investors that the market had become significantly over-supplied despite the re-implementation of U.S. sanctions on Iran by the Trump Administration.

This overall 45% drop in the domestic benchmark price for crude took place during the same period when producers were setting their capital drilling budgets for 2019. While one might think that reality would cause a significant curtailment of drilling activity during the first half of 2019, consider that only about a third of that price drop had come about by November 1, by which time most of these companies were finalizing those budgets. With WTI sitting at $63/bbl at that time, few were anticipating a further drop of this magnitude by the end of December.

Here’s the thing: Thousands of domestic drilling projects that are economic to drill at $63/bbl are uneconomic to drill at $42/bbl. So right now we are already beginning to see reports that some companies are going back and reconsidering some budgeting decisions that were made just a month ago. Others are likely still in wait-and-see mode as they try to assess whether the December price drop is a temporary result of panic-selling or a more long-term phenomenon related to a weakening global economy.

Given all of this, my first prediction is that we will see a gradual fall in the domestic U.S. rig count throughout the first half of 2019.

 

Read the Rest Here

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