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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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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.
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.
Hope I didn’t say anything too stupid…
The Global Energy Leaders Podcast
As their decade-long effort to demonize hydraulic fracturing – or “fracking” as they like to call it – lost its previous steam over the last couple of years, anti-fossil fuel conflict groups who raise money by stoking public fears related to the oil and gas industry have gradually shifted their main focus over to the pipeline segment of the business. Encouraged by the temporary victory given them by the Obama Administration related to the Keystone XL pipeline project, these conflict groups have become engaged in protests related to numerous midstream projects in the Northeast, in North Dakota (the Dakota Access Pipeline) and in West Texas (the Trans-Pecos Pipeline).
While their high-profile “wins” to date have been either temporary or, as with the Dakota Access Pipeline, illusory, nevertheless. Thus, they have chosen to engage in a constantly-increasing number of pipeline-related construction projects and incidents.
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“How does this bust differ from the bust in the ’80s?”
I get asked that question quite often, partly because I’m growing old and it shows on my face, and partly because I’ve been in the oil and gas industry since 1979, and people assume — rightly or wrongly — that I know some stuff because of that. I did live through that bust in the ’80s, and it wasn’t fun. I got laid off from a job in 1985 and was out of work for a few months — the only time I’ve been unemployed since I was 16 years old — and that caused me and my wife great financial hardship.
So I do remember those days all too well. To understand why that bust happened, you first have to go back to the oil shocks of the 1970s, when the Saudis and other OPEC nations implemented oil embargoes, first in 1973 and then again in 1979.
Two memories from that period of time stick with me to this day. The first is of filling my mother’s 1972 Pontiac Grand Ville up with gasoline on the day in 1974 when the price of gas at the local Circle K in Beeville, Texas, reached the then unheard of sum of 50 cents per gallon. That was the first time I had ever had to come up with 10 bucks (the aircraft carrier-size Grand Ville had a 26-gallon tank) to fill up a car with gas. I knew I was going to have to start working overtime or get another job if I was going to keep putting gas in that car. The second memory is of sitting at a long-disappeared Texaco station at the corner of Richmond Avenue and Buffalo Speedway in Houston during the summer of 1979, having to wait in a very long line of cars on an odd-numbered day to pay over $1 per gallon for my allotment of gas to fill up my Chevy Caprice. Another 26-gallon tank that was even more costly to fill.
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The history of the oil and natural gas industry in North America is in many ways intertwined with the history of the railroad, which in the mid-19th century became the main means of transcontinental transportation for Americans and Canadians.
As these great railroad systems were constructed across the continent, the companies building them gained ownership of great swaths of land, and, as importantly, obtained ownership of the minerals beneath the land. In the United States, as oil and natural gas began to be discovered across the Midwest and Rocky Mountain states, a good deal of it lay beneath land owned by rail companies like Burlington Northern, Union Pacific and Santa Fe.
These companies all eventually created subsidiaries to manage their oil and gas royalty holdings, and those subsidiaries eventually evolved into some of the country’s largest independent producers: Burlington Resources, Union Pacific Resources and Santa Fe Energy. Those companies are all gone today, having been merged with or acquired by ConocoPhillips, Anadarko Petroleum and Devon Energy, respectively, but their place in history is firmly established.
The growing glut of natural gas on the global market – spurred in part by increased exports of Liquefied Natural Gas (LNG) by U.S. producers over the last year – reminds us of the dynamic nature of the domestic natural gas market, and the role shifting public policies have played into that over the years.
My own frame of reference here begins during the summers of 1977 and 1978, when I earned college tuition money by taking summer jobs on pipeline crews in deep South Texas. In 1978, the Congress and the Carter Administration had become convinced by some really bad science that the U.S. would actually run out of natural gas in a few decades, and thus needed to conserve what little remaining reserves it had on-hand for home heating usage. Acting on this belief, then-President Jimmy Carter signed into law the Natural Gas Policy Act (NGPA) and the Fuel Use Act (FUA), both of which had major impacts on natural gas markets, and both of which inhibited investment in new natural gas-buring infrastructure.
The NGPA discouraged investment in drilling for new natural gas reserves by allowing the federal government to establish ceiling prices producers could receive for various categories of natural gas that were established under the law. The FUA was even more prohibitive on the demand side of the natural gas ledger, prohibiting utility companies from building new gas-fired power plants. The result? A Democratic Administration ironically actively encouraged the building of dozens of new coal-fired and nuclear power plants all over the United States, many of which are still operating, much to the chagrin of today’s climate alarm lobby.
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As the United States Senate finally begins taking up joint resolutions designed to reverse a handful of regulations implemented during the waning days of the Obama Administration, it’s worth discussing the indispensable role the Congressional Review Act (CRA) has come to play in halting regulatory excess, and more importantly, upholding the rule of law. While the merits of some of the regulatory actions targeted for reversal are certainly arguable, others lie so far outside the governing statutes that their reversal, either by congress or the courts, was almost inevitable from the day of their initial proposal.
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Even though the Alpine High resource sits geographically beneath the same land into which previous operators have drilled for many decades, it is in fact a new field in terms of the hydrocarbons being targeted. Because of this, one must view the Alpine High through the same lens used to view major new resource plays like the Eagle Ford Shale in Texas or the DJ Basin in Colorado.
, when operators in that area were drilling test wells involving 5-stage frac jobs and 3,000′ foot horizontal laterals, and were issuing celebratory press releases announcing oil wells that tested at initial flow rates of 1,000 barrels per day (bpd). Today, Eagle Ford operators are drilling wells with 2 mile or more laterals, frac jobs involving 30 or even more stages, and would want to commit harikari if a new well in the fairway of the play tested at only 1,000 bpd.
Read the entire piece here.