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The Next Permian Bottleneck: Crude Oil Exports

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

There are many ways to tell the story of any oil boom, one of which is to view them through the spectrum of the various bottlenecks they create. By any measure, the ongoing boom in the Permian Basin has created more than its share of such traffic jams already, and at least one more is likely on the way.

The reasons for this are many: The unprecedented magnitude of this particular oil boom in modern times has much to do with it. The fact that the play area is in a sparsely-populated, mainly-rural part of the world also plays a role. The nature of the oil being produced – the light, sweet variety – and the play area’s immense geographic sprawl also have also been major factors in the creation of a variety of bottlenecks.

Some of the bottlenecks the Permian has experienced come about in any significant oil or gas boom: The ongoing challenges of training and hiring qualified workers is a classic. The shortage of natural-gas-gathering infrastructure that resulted in a high volume of flaring is another that was also a feature of booms in places like the Eagle Ford and Bakken and Marcellus shale plays. Roads and other limitations in preexisting regional infrastructure inevitably resulted in bottlenecks in traffic as the counties and states struggle with  funding major new improvement projects.

Over the last two years, the big bottleneck talk related to the Permian has centered on the need for a major expansion of pipeline takeaway capacity to move oil, natural gas and natural gas liquids (NGLs) out of the basin to major market and refining centers along the Texas and Louisiana Gulf Coast. But that particular bottleneck is about to start resolving itself during course of this year. Midstream projects will add up to 6 million barrels of oil equivalent of new takeaway capacity out of the Permian by the end of 2021 , and that just from the projects currently underway.

This new capacity is desperately needed, as the U.S. Energy Information Agency projects that Permian crude production will double over the next four years, from the current 4 million bopd to as much as 8 million bopd. Given that virtually all Permian Basin natural gas is associated production from wells classified as oil wells, we can expect similar increases in natural gas and NGL production during that time frame.

Read the Rest Here

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.

Read the Rest Here

 

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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Is an Oil Price Train Wreck Hiding Around the Bend?

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

The energy media has recently featured headlines that seem at odds with one another and that, when taken together, portend the possibility of a coming train wreck somewhere down the road where crude oil supply and prices are concerned. Let’s look at some of the more recent headlines as examples:

“The U.S. Shale Boom is About to Get a Major Upgrade” – Investors Business Daily, Feb. 19

“Wall Street Calls for Better Returns; Shale Gets Thrifty” – Gulf Times, Feb. 17

“OPEC Cuts Send Crude Exports to Lowest Since 2015” – Financial Times, Feb. 19

“U.S. shale oil output to hit record 8.4 million bpd in March: EIA” – Reuters, Feb. 19

That Investor’s Business Daily story begins by stating “The U.S. shale oil boom is about to get a whole lot bigger. The reason: Giant oil companies like Exxon Mobil (XOM) are leveraging their massive scale to unleash more production from the top-producing shale oil formation.”

The EIA projects that the domestic industry will push U.S. oil production past the 12 million barrels of oil per day (bopd) level for the first time in the nation’s history in March, with 70% of that coming from shale plays. Fully 1/3rd of all oil produced in the U.S. in March will come from the Permian Basin alone.

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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Debating The Permanence Of The Permian Shale Boom

One thing you learn very quickly when studying the nature and history of the oil and natural gas industry is that nothing related to it is permanent. Reservoirs deplete, technologies inexorably advance, means of financing projects come and go, and hot play areas go cold when the next one heats up.

While many in recent years have tried to characterize the production of oil and gas from shale formations, with its repeating processes and low frequency of dry holes, as essentially a “manufacturing” process, it really is not at all similar to the making of textiles, steel and plastics.

All of which is sort of a long way around to getting to a headline that ran in Monday’s Arab News:  “The Big Question for U.S. Shale:  Is it Permanent or Just Permania?”  Given that nothing in oil and gas is ever permanent, the obvious answer to the question is that the current situation related to U.S. oil and gas development is a great, big case of “Permania.”

The real question, as borne out by the discussions atlast week’s CERAWeek conference in Houston, is just how justified the current case of rampant “Permania” happens to be, and more importantly, how long it will last.  If you ask Tim Dove, CEO at the largest Permian Basin producer, Pioneer Natural Resources, it is very justified indeed.  So justified, in fact, that Dove announced just a few weeks ago that his company would be divesting 100 percent of its non-Permian Basin assets soon, and betting its entire future on maximizing the potential from its more than 700,000 acres of leasehold in the massive Permian region.

“What we’re staring at beneath our feet cannot be replicated anywhere else in the United States. That’s a given,” Dove told the IHS Markit-sponsored conference last week, “We have a golden goose right before us.”

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Energy Week Podcast, Episode 4: Why the majors aren’t worried about “Peak Oil”

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.

 

Listen to the Podcast Here

 

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

 

 

 

 

 

 

 

 

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