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
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.
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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.: 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.
The 2017 capital budgets for the majors and the large independent producers who drill the great majority of wells in the U.S. were put into place in anticipation of a crude price at or above $50/bbl. But the price for West Texas Intermediate (WTI) has recently fallen below that level due in large part to uncertainty about where OPEC will head beginning July 1.
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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.
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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.
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“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.
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“There are many, many times when we sit around a table and I’m the only one in heels. And it doesn’t go unnoticed. So I always wanted to be very confident of the facts and prepared in what I was going to say, because you don’t want to be dismissed. That’s true in any meeting, in any setting; however, it was very true in my earlier years. I think that once you prove your muster, you are given equal time and equal confidence. But it is true: You do have to prove it; you do have to earn it, not unlike in anything else.”
So says Karen Harbert, President and CEO of the Institute for 21st Century Energy at the U.S. Chamber of Commerce. She’s discussing some of the challenges of being a woman in what has been a mostly male-dominated world of energy, a world that she has played a significant role in shaping throughout an accomplished career that began with an assignment at the Republican National Committee (RNC) upon her graduation from Rice University in 1988.
“And I think things are beginning to change in the energy industry: We certainly see more women in the C-suite,” says Harbert. “On the other hand, I don’t think we see enough women on boards. That’s probably across all business areas, but particularly in the energy industry, and I hope that does continue to change over time. But it is less about bringing people in from the rigs and up the headquarters ladder; the industry becomes more open to women as it evolves into more of a high-tech industry. So, it’s changing, and for me it meant doubling down and making sure I was well-prepared. But also, it’s about kicking the tires a little bit and letting them know us women can do this too.”
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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.