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Did BP Just Unlock A New Major Shale Gas Basin?

| TOPICS: Oil and Gas News
Posted on August 09, 2017

Article By: OilPrice.com

BP made a potentially groundbreaking discovery in New Mexico, which could open up a new area for shale gas development.

BP was drilling in a little-known area in northern New Mexico, in a place called the Mancos Shale. The British oil giant reported huge figures from the shale gas well, suggesting the Mancos could provide a massive new source of U.S. shale gas.

The initial 30-day production rates of the new well hit 12.9 million cubic feet of gas per day, a figure that tops horizontal wells in the highly prolific Eagle Ford shale, which often see wells producing 8 to 12 million cubic feet per day. And the production figures are the highest in 14 years within the San Juan Basin, which encompasses southwest Colorado and northeast New Mexico, and includes the Mancos Shale.

“We are delighted with the initial production rate of this well,” said Dave Lawler, CEO of BP’s U.S. Lower 48 onshore business. “This result supports our strategic view that significant resource potential exists in the San Juan Basin, and gives us confidence to pursue additional development of the Mancos Shale, which we believe could become one of the leading shale plays in the U.S.” BP plans on relocating its U.S. headquarters to Denver, a sign of how important the British oil company views the Rocky Mountain region.

A USGS report from 2016 estimates that the Mancos Shale holes 66.3 trillion cubic feet of natural gas, enough to rank the Mancos as the second largest shale play in the country, just behind the Marcellus.

The impressive results come from acreage that BP acquired two years ago, in an area that at the time had no natural gas rigs in operation.

But there still plenty of hurdles for BP and any other company hoping to turn the Mancos into a major source of shale gas. First, they need to prove that the BP well was not simply a fluke. "The next test now will be showing some repeatability," said Linda Htein, senior research manager of Wood Mac's upstream research team, according to the Houston Chronicle. "Will they be able to repeat these results in another five wells? They think there's potential for scalability here."

Also, costs need to come down. David Deckelbaum, an energy analyst at Keybanc Capital Markets, told Bloomberg that the geology in the Mancos is much more complex than some more well-known shale plays. Drillers need to go deeper and drill through difficult rock formations. That means that it can cost as high as $13 to $15 million per well in the Mancos, about twice as much as typically seen in the Marcellus at $5.5 to $7 million, while the white-hot Permian Basin sees costs on the order of $8 to $10 million per well.

However, drilling in new areas is always tricky at first. Costs are high because companies are starting from scratch, learning the area, trying to figure out where the best spots to drill are. There is also a lack of infrastructure in the beginning, which keeps costs high and slows the ability to ramp up because of an inability to ship product. These things get worked out in time – costs tend to fall the more drilling activity scales up.

But the Mancos will still struggle to compete with more well-established shale gas basins. Why drill in the Mancos instead of the massively prolific and relatively cheap Marcellus Shale? Or why not drill in the Permian, where you can produce oil as well as gas? Plus, those plays have pipelines and processing facilities that make it easy to offload what a company produces.

But the gusher from BP suggests that investing in this new area could be worth the trouble.

“Given the very strong initial production rates of this well, we believe there is potential for the Mancos Shale to be a large gas play,” BP spokesman Brett Clanton told the Denver Post. “It’s still early, but based on this initial success, we will be drilling more wells in the Mancos this year.”

 
 

Natural Gas Prices Poised To Rise As Exports Boom

| TOPICS: Oil and Gas News
Posted on August 09, 2017

Article By: OilPrice.com

New data from the Energy Information Administration (EIA) has brought some good news for advocates of U.S. natural gas production. In three of the first five months of 2017, the United States exported more natural gas than it imported, reversing a trend of net-imports that’s endured for nearly sixty years.

Rising exports, fueled by a the shale boom which has seen a marked increase in U.S. natural gas production, have been facilitated by new infrastructure and rising demand outside the U.S., most notably in Mexico and eastern Canada.

The United States began importing large amounts of Canadian natural gas in 1958, when the TransCanada natural gas pipeline was completed. Significant quantities of Canadian natural gas continue to flow over the border, chiefly through pipelines in Idaho and Montana.

But now, rising natural gas output from the shale boom has displaced Canadian production, reducing the volume of Canadian imports. There has been a simultaneous increase in demand for U.S. natural gas in eastern Canada, which is better supplied from U.S. sources than from distant Alberta, the hub of Canada’s energy industry. While the U.S. remains a net importer of Canadian energy, the urban centers of Toronto, Quebec and Montreal are becoming increasingly reliant on U.S. natural gas piped in from the south.

In March 2017, U.S. natural gas exports to Canada reached 3.21 billion cubic feet/day, nearly breaking a record of 3.25 bcf/d set in 2012. Imports of Canadian natural gas, which reached a peak of 12 bcf/day in 2007, were around 8 bcf/day.

The real story in U.S. natural gas exports, however, is in Mexico. Natural gas exports south of the border reached near-record levels in the first half of 2017, averaging 4.04 bcf/d.

Exports to Mexico have been steadily increasing since 2010, a sign of growing U.S. production and declining Mexican output, but also an indicator of the growing demand in Mexico for natural gas for electricity production and industrial activities. Natural gas accounts for sixty percent of Mexican electricity demand, though upstream activities have been increasing since the 2013 Energy Reforms and the country’s domestic production could swing back in the years to come.

The pipeline network linking the U.S. to Mexico has been improved and updated in the last five years, with new pipelines increasing the total export volume to 7.3 bcf/d. Plans for additional pipelines featured heavily in U.S. President Donald Trump’s speech on energy policy in late June 2017, despite his repeated calls that a wall be built between the two nations. The President suggested the new pipeline could be built “under the wall,” eliciting a few chuckles from his audience.

Jokes aside, the U.S. is likely to remain a major source of energy for Mexican consumption in the years ahead. New pipelines, including the Roadrunner (Phase II), Comanche Trail and Presidio Crossing projects will increase U.S. capacity to deliver natural gas to Mexico, directly linking the nation’s most productive shale areas to high-growth markets. Total U.S. natural gas export capacity to Mexico is set to increase to 15 bcf/d.

The other aspect of U.S. natural gas export growth has been the increase in liquefied natural gas shipments (LNG) from the nation’s single operational LNG terminal at Sabine Pass in Louisiana. Since coming on line in February 2016, Sabine Pass has commissioned three liquefaction trains, allowing exports to reach 2 bcf/d in 2017.

Some of this product has been delivered to Mexico, largely to feed demand in the country’s central regions which have experienced natural gas shortages. Shipments to Mexico reached 14 bcf in January 2017.

Harold Hamm, a pioneer of the U.S. shale boom, is anticipating a surge of U.S. LNG exports. The energy lobbyist has the ear of President Trump, who has been vigorously promoting increased U.S. energy production. Yet Hamm has acknowledged that the real barrier to LNG exports is not capacity, but demand. Right now, the U.S. competes with other LNG exporters for markets in East Asia and South America.

Mexico, which has been taking LNG shipments to correct for natural gas shortages in its central regions, may be weaning itself off LNG as more natural gas becomes available via pipeline. The boom in pipeline construction linking U.S. shale to markets in Mexico may price LNG out of the market: liquefying and transporting the gas via tanker is more expensive than simply pumping it through a pipeline.

The EIA believes LNG will drive increasing U.S. energy exports, amounting to more than half of all energy exports by 2040. With natural gas now flowing out of the U.S. to markets north and south, and with new capacity being added yearly, it seems likely that the boom in natural gas will endure despite lower-than-average prices. All that is required is for demand to match the abundant supply.

 
 

Oil And Gas Added $1.3 Trillion To The U.S. Economy In 2015

| TOPICS: Oil and Gas News
Posted on August 04, 2017

Article By: OilPrice

Oil and gas ventures in the United States supported 10.3 million jobs and added $1.3 trillion to the national economy in 2015, the year after the oil price crash, according to a new report by PricewaterhouseCoopers and the American Petroleum Institute (API).

Oklahoma, Wyoming, North Dakota, and Texas held the highest proportion of jobs directly related to the oil and gas supply chain. The industry’s operations supported 8.1 million jobs nationwide while its capital investment added 2.3 million jobs in 2015, the report read.

The report also lists the economic impact of the fossil fuel sectors by state, as compiled by local chapters of the API.

Hundreds of thousands of oil industry professionals lost their jobs after the oil price crash in 2014, but this year’s reports from the Bureau of Labor Statistics indicate a sector with renewed labor vigor. Last year, the sector was shedding 18,000 jobs per month after a second major dip in oil prices in January.

An upswing in active rigs across the nation has triggered mass rehirings in recent months. The turn-around comes as prices slowly edge above $50 a barrel. There are hopes that federal changes to environmental regulations, the opening up of federal land for fossil fuel extraction and improving price forecasts will all support a new boom in domestic oil and gas production.

 
 

U.S. Shale Oil Producers Cannot Shake Impulse To Keep Pumping

| TOPICS: Oil and Gas News
Posted on August 04, 2017

Article By: Reuters

HOUSTON (Reuters) - With slumping crude oil prices stuck below where they started this year, U.S. shale oil producers have cut more than $1.2 billion from their 2017 spending budgets, even as they pledge to pump more oil.

That more-for-less approach highlights the shale industry's ability to ramp up production and keep improving the process of drilling and fracking a well to increase its clout in global oil markets.

U.S. shale oil producers expect to pump at least 160,000 more barrels per day this year than previously announced, according to a Reuters review of second-quarter regulatory filings.

In general, the industry has slowed rig expansion plans first put in place earlier this year. U.S. oil and gas companies added 10 drilling rigs in July, the fewest in any month since May 2016. Cuts in planned spending come as crude prices have lost more than 7 percent this year to $49.03. [O/R]

"We essentially can do more with less," said Lee Tillman, chief executive of Marathon Oil Corp (MRO.N), which on Wednesday shaved its 2017 spending plan by between $200 million and $300 million after posting a quarterly loss. Still, Marathon boosted its production forecast by about 7 percent for the year.

Marathon's stock gained 3.9 percent to $12.51 on Thursday after the announcement.

Wall Street has been pushing shale producers to cut spending in the face of stubbornly high global oil inventories that have depressed pricing and thrown off efforts by the Organization of the Petroleum Exporting Countries to balance supply and demand.

Shares of Noble Energy Inc (NBL.N), Pioneer Natural Resources Co (PXD.N), Concho Resources Inc (CXO.N) and Apache Corp (APA.N) - none of which cut their budgets - dropped on Thursday.

"I think OPEC had more success in stabilizing prices than people thought at the end of last year," said Keith Phillips, a senior economist at the Federal Reserve Bank of Dallas. "They have done pretty well in holding back production, but that means production in the U.S. can now be pretty significant in terms of how it affects oil prices."

Concho, one of the most-profitable Permian producers, said it would boost output by 25 percent this year over last year's levels, a strategy its executives defended.

"We're well-positioned for the volatility and we'll continue to build value in all points of the cycle," said CEO Tim Leach. Concho shares dropped nearly 9 percent on Thursday.

Pioneer dropped more than 7 percent on Thursday after disclosing higher costs and lower-than-expected oil production in some new wells in the Permian, the largest U.S. oilfield.

As oil wells age, they tend to produce more natural gas, but Pioneer said it has been finding a larger amount of gas than expected.

Pioneer executives sought to play down the unexpected development, with Tim Dove, the company's CEO, calling it a "settled issue" and promising to meet future oil production goals.

But Wall Street analysts peppered other companies on conference calls on Thursday with queries about rising gas production from Permian oil wells. It was an ironic twist, as shares of companies operating in the Permian have been Wall Street darlings for months.

Those worries helped drag down shares of other Permian producers. WPX Energy Inc (WPX.N) lost 8.7 percent; Parsley Energy (PE.N) slid 7.6 percent; and Noble Energy lost 7.7 percent.

"Investors are really thinking right now about capital discipline and they're thinking about your highest quality companies as the place to invest," Ken Fisher, Noble Energy's finance chief, said in an interview.

 
 

Louisiana Offshore Oil Port Looks to Begin Exporting U.S. Crude

| TOPICS: Oil and Gas News
Posted on July 27, 2017

Article By: Oil & Gas 360

Port would be able to load massive supertankers with Permian, Eagle Ford oil

The country’s largest oil port wants to begin exporting crude, becoming a part of the growing U.S. oil export business.

The Louisiana Offshore Oil Port (LOOP) is located about 20 miles off the coast of Louisiana, directly south of New Orleans. Standing in 110 feet of water, LOOP is the only U.S. port that can handle the massive oil tankers preferred in global oil shipping. Very Large Crude Carriers (VLCCs) can hold cargoes of around 2 million barrels of oil and are about 1,000 feet long.

300 MBOPD of export capacity could be ready in just months

LOOP is currently gauging interest from shipping companies regarding exports from the facility, according to Reuters. Exports would not impact imports from the port, which has been operational for more than three decades.

According to Bloomberg, adding export capacity would not require a large overhaul of the port’s facilities, but instead would need only minor modifications. If LOOP makes these modifications, it may be able to load crude onto VLCCs by early 2018. According to Bloomberg, LOOP can export around 300 MBOPD, or 41% of all U.S. crude exports last week.

 

Corpus Christi also wants to export oil

LOOP will be competing with Corpus Christi, which was the primary crude export hub in the U.S., according to Bloomberg. The port recently approved a $350 million dredging project to deepen its channel. Currently, most ships transporting crude from Corpus Christi are Aframax-size vessels. These ships hold around 600,000 barrels of crude. The dredging project will allow Corpus Christi to handle Suezmax tankers which hold about 1 million barrels each. While Occidental’s Ingleside Energy Center near Corpus Christi received its first VLCC earlier this year, the port is not deep enough for a fully-laden VLCC.

 

Exports up eleven-fold, still rising


Growing U.S. oil production means companies are now looking to export American oil overseas. While the U.S. has exported a small amount of oil for many years, volumes exported have increased sharply in the last few years. In 2011, the U.S. exported an average of 47 MBOPD. By 2016, that number had grown eleven-fold to 520 MBOPD, and continues to rise. Additional export infrastructure would almost certainly allow shipments to grow further, letting U.S. crude power locations around the world.