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Texas Update- November 2017

Texas Update- November 2017

Dean Fantazzini has provided his latest estimates of Texas oil and natural gas output.

His analysis is based on RRC data only. Each RRC data set from Jan 2014 to Sept 2017 for crude and from April 2014 to Sept 2017 for condensate and natural gas are used in the “all data” estimate, the most recent 49 months of data are collected for each individual data set. After March 2016 there was a shift in the data for crude and condensate so for the C+C estimate, I include an estimate which uses all data from April 2016 to the most recent data point (“Corrected 18 month vintage”). Dean prefers to present an “all vintage data” estimate and an estimate using only the most recent 3 months “correction factors”. For Sept 2017 the all vintage data estimate is 3174 kb/d, the last 3 month vintage estimate is 2957 kb/d, and the last 18 month vintage estimate is 3039 kb/d with falls of 68, 96, and 80 kb/d respectively from the previous month.

chart/

A chart I have not presented recently shows initial data reported for the past 26 months (July 2015 to Sept 2017). The change in the data around July 2016 is pretty clear. Notice how the lines start to become very closely spaced at about 6 to 8 months from most recent estimate, especially for the Sept 2016 to Feb 2017 period. This is an indication that the RRC data is improving.

chart/

The Chart below is something new. It shows only the most recent data point from each of the data sets since March 2014 and compares with the data from drilling info which can be found at the EIA website. Notice that the RRC initial data from the RRC website’s online query does not always move in sync with the drilling info data due to fluctuations in the amount of pending lease data from month to month and other factors affecting the speed that data is reported and processed.

…click on the above link to read the rest of the article…

Can The Gas Glut Kill The Permian Boom?

Can The Gas Glut Kill The Permian Boom?

Permian

The Permian basin continues to add new oil production, but shale drillers in West Texas could face an unexpected problem: too much natural gas.

Natural gas is produced as a byproduct when drilling for oil. Oil tends to be more lucrative, so shale companies typically target oil in places like the Permian, and the gas is considered an added benefit. However, the Wall Street Journal reports that shale drillers in the Permian are struggling with too much gas and not enough places to put it.

The gas pipelines from the West Texas shale fields are at capacity. To the north, the market is saturated with gas from the Rockies and Canada, the WSJ says. And while there are several natural gas pipelines under construction that would carry gas from Texas to Mexico, those projects are not yet online. One key pipeline, the Gulf Coast Express, won’t come online until 2019, and several other projects have similar timelines.

While Permian producers really want to continue to ramp up oil production, they are extracting more gas than they know what to do with. The result is plunging spot prices for gas. According to the WSJ, the Waha trading hub in West Texas has gas selling for 57 cents/MMBtu below Henry Hub prices. With Henry Hub at roughly $3/MMBtu, that puts West Texas gas at something like $2.50/MMBtu.

But gas output is expected to continue to climb. With no space left on any pipelines, prices will continue to crater. Analysts, according to the WSJ, see gas prices in the region dropping further, potentially trading for a $1/MMBtu discount relative to Henry Hub.

(Click to enlarge)

…click on the above link to read the rest of the article…

The IEA Is Grossly Overestimating Shale Growth

The IEA Is Grossly Overestimating Shale Growth

Oil

This week, the IEA said that U.S. shale would dominate the oil and gas markets over the next decade, rising to “a level 50 percent higher than any other country has ever managed.” With a “remarkable ability to unlock new resources cost-effectively,” U.S. shale will add millions of barrels of new oil supply by 2025.

But some view such heady predictions as fanciful. There are a variety of reasons why U.S. shale could struggle to add several million additional barrels per day over the next few years. But here are just a few.

First, shale suffers from steep decline rates, much steeper than conventional wells. That means drilling is like running on a treadmill—more and more wells need to be drilled just keep production flat. The extraordinary rate of drilling over the past few years means that the industry not only needs to keep going at that frenzied pace, but it needs to expand its rate of drilling to add more barrels.

Just to cite a small example of the challenge the industry faces, the Permian Basin—the most prolific in the U.S.—has a legacy decline rate that has exploded over the past few years.

According to the EIA, the basin will lose 165,000 bpd of production in December, meaning that the industry needs to add that amount in fresh supply to keep output from falling. The agency does see the industry bringing 223,000 bpd of new supply online in December, but that nets out to only an addition of 58,000 bpd after the decline rates are factored in. The Permian hasn’t yet seen its output peak, but it will be very tall task to keep production growing for years to come, especially since the decline rate grows larger and larger.

…click on the above link to read the rest of the article…

OPEC October Production Data

OPEC October Production Data

All data below is based on the latest OPEC Monthly Oil Market Report.

All data is through October 2017 and is in thousand barrels per day.

I have now included Equatorial Guneia although I only have data from January 2015 from OPEC’s secondary sources. The January 2015 E. Guneia data was extended back to January 2005. I know this is inaccurate but production from E. Guneia is so small it will make little difference.

OPEC crude oil production dropped by 151,000 barrels per day in October.

 

Algeria took a hit in October, down 38,400 bpd.

Angola was up almost 70,000 bpd in October.

Not much is happening in Ecuador. They were up 7,100 bpd in October.

I do not have historical data for Equatorial Guinea. The OPEC MOMR gives average annual production data for 2015 and 2016 and quarterly data for the first two quarters of 2017. But now we will have monthly data from now on. However, they produce the least of all OPEC countries and their production will make little difference.

Gabon, another of the also-rans. Any change in their production will have only a small effect.

…click on the above link to read the rest of the article…

U.S. SHALE OIL PRODUCTION UPDATE: Financial Carnage Continues To Gut Industry

U.S. SHALE OIL PRODUCTION UPDATE: Financial Carnage Continues To Gut Industry

As the Mainstream media reports about the next phase of the glorious U.S. Shale Oil Revolution, the financial carnage continues to gut the industry deep down inside the entrails of its horizontal laterals.  The stench of fracking fluid must be driving shale oil advocates utterly insane as they are no longer able to see the financial wreckage taking place in these companies quarterly reports.

This weekend, one of my readers sent me the following Bloomberg 45 minute TV special titled, The Next Shale Revolution.  If you are in need of a good laugh, I highly recommend watching part of the video.  At the beginning of the video, it starts off with President Trump stating that the U.S. has become an energy exporter for the first time ever.  Trump goes on to say, “that powered by new innovation and technology, we are now on the cusp of a new energy revolution.”  While I have to applaud Trump’s efforts for putting out some positive and reassuring news, I wonder who is providing him with terribly inaccurate energy information.

I would kindly like to remind the reader; the United States is still a NET IMPORTER of oil.  We still import nearly six million barrels of oil per day, but we export some finished products and a percentage of our shale oil production.  Thus, we still import a net of approximately three million barrels per day of oil.

A few minutes into the Bloomberg video, both Pioneer Resources Chairman, Scott Sheffield, and Continental Resources CEO, Harold Hamm, explain how advanced technology will revolutionize the shale oil industry and bring down costs.  I find that statement quite hilarious as Continental Resources and Pioneer continue to spend more money drilling for oil and gas then they make from their operations.

…click on the above link to read the rest of the article…

IEA Pours Cold Water On OPEC Optimism, Warns Global Oil Demand Shrinking

IEA Pours Cold Water On OPEC Optimism, Warns Global Oil Demand Shrinking

Pouring cold water on yesterday’s optimistic demand forecast projected by OPEC, which projected global crude demand growth to rise by 1.5mm b/d in 2018, this morning the International Energy Agency warned that the crude oil price rally could be short-lived because, contrary to OPEC’s expectations, global oil demand will be weaker than expected this year and next. In its closely watched monthly oil report, the IEA cut its crude demand growth outlook by 100,000 barrels a day for 2017 and 2018, as the WSJ reported. The agency now expects demand to grow by 1.5 million barrels a day this year and 1.3 million barrels a day next year.

The IEA predicted that balances will likely show the crude market is oversupplied in Q4 2017 and the first half of 2018, with oil demand in 2017 at 97.7mmb/d, rising to 98.9 million in 2018. Meanwhile, non-OPEC Oil Supply is expected To rise by 700,000b/d In 2017 To 58.1mmb/d, and another 1.4 mmb/d in 2018 to 59.5mm b/d, led by shale output.

The IEA also noted that global oil inventories fell 63mm barrels In Q3, only second quarterly draw since 2014, with the call on OPEC crude seen at 32.6mmb/d in Q4, declining to 32.0mmb/d in Q1 2018.

However, “the highlight of the report was that they lowered their demand forecast,” said Jens Pedersen, senior analyst at Danske Bank. The report also cautioned that “if the geopolitical concerns calm down, then prices could fall down again, so on the margin it’s a tad bearish.”

The IEA noted that oil prices have risen roughly 20% since early September with Brent crude sustaining gains above $60 a barrel in recent weeks, on the back of supply disruptions and geopolitical tensions in the Middle East. But if those problems prove temporary, a “fresh look at the fundamentals” would likely show the “market balance in 2018 does not look as tight as some would like and there is not in fact a ‘new normal.’”

…click on the above link to read the rest of the article…

Mideast Turmoil: Follow the Oil, Follow the Money

Mideast Turmoil: Follow the Oil, Follow the Money

In this scenario, time is running out for Saudi Arabia’s free-spending royalty and state– and for all the other free-spending oil exporters.

While there are numerous dynamics at work in the turmoil roiling Saudi Arabia and by extension, the Mideast, one way to cut to the chase is to follow the oil, follow the money. Correspondent B.D. recently posited a factor that has been largely overlooked in the geopolitical / fate-of-the-petrodollar discussions:

Perhaps the core dynamic is a technical one of diminished oil production. Here is Bart’s commentary:

“I think the Saudis may be quickly running out of profitable oil to produce/export.

I think they tried to over-produce for a while to damage the competition… and they now have production issues resulting from that. (As has happened in the past)

I think they may have recently slipped over the event horizon for being the world’s swing producer of ‘cheap-ish and abundant’ oil. That has huge ramifications for the global markets ability to quickly respond to supply/demand fluctuations.

I suspect they’re no longer cutting production voluntarily … they are now in the grip of a technically driven decline in output. (Why else begin selling off ARAMCO now?)

I doubt that many national economies can handle $70+ oil for very long… price will be limited by the ability of the consumers to pay. What I assume should happen is relentless severe volatility in the absence of a big swing producer that can open up or shut in production with comparative ease.”

Thank you, B.D. Let’s start with what’s well-established about Saudi oil production:

1. The days of sticking a straw in the sand and oil gushing out are long gone. Oil production now depends on costly technologies such as pressurizing the wells with seawater, CO2, etc.

…click on the above link to read the rest of the article…

OPEC Reports 151Kbpd Drop In October Crude Output; Raises Demand Forecast For 2018

OPEC Reports 151Kbpd Drop In October Crude Output; Raises Demand Forecast For 2018

True to its perpetually optimistic form, OPEC, which only last week for the first time conceded the threat posed by rising US shale production…

… sharply raised its demand forecast for cartel oil in 2018, ahead of a key meeting of the group’s ministers later this month. According to OPEC’s monthly market report, the oil exporters said the forecast demand for its oil next year had been increased by around 400,000 barrels a day from the previous month to 33.4mmbpd, about 0.46mmbpd higher than in 2017. Overall, the cartel now expects global demand growth to rise by 1.53 million barrels a day in 2017 – an upward revision of 74kbps from the October report citing better than expected performance from China – and 1.51 million barrels a day in 2018.

The increase comes on the back of the recent global economic strength, which has exceeded many analysts’ expectations, helping to draw down inventories that built up during the crude glut since late 2014. Furthermore, the rise in demand has combined with the 1.8mmbpd in production cuts by OPEC and non-OPEC nations since January of this year to help tighten the market, pushing the price of Brent back above $60 a barrel for the first time in two years.

As the FT adds, cartel analysts said demand for Opec crude is expected to reach 34m b/d in the second half of next year, roughly 1.4mmbpd above what they pumped last month, according to secondary sources. As usual, oil demand is contingent not only on overall confidence (i.e. the stock market), but also whether the global economy is expanding or contracting, which all boils down to whether China is creating lots of new debt each month.

…click on the above link to read the rest of the article…

The Destruction of a Vast Transnational Nursery?

The Destruction of a Vast Transnational Nursery?

“If the oil execs aren’t terrarists, then who is?  And if that doesn’t make the big energy companies criminal enterprises, then how would you define that term? To destroy our planet with malice aforethought, with only the most immediate profits on the brain, with only your own comfort and wellbeing (and those of your shareholders) in mind: Isn’t that the ultimate crime? Isn’t that terracide?”

Of course, that was in the good old days before Donald Trump and his cronies filled a whole administration to the tipping point with so-called climate skeptics and outright climate-change denialists.  And this continues to happen, even as one report or study after another confirms that humanity and its fossil fuels are heating the planet at a remarkable rate and filling its atmosphere with carbon dioxide at a record pace.  In the end, Trump and his crew may prove to be the biggest collection of criminals — in terms of harm to this world — ever.  And it should be considered a historical irony (of sorts) that, on this issue, the Republicans, once the American party of the environment, are with them all the way.

…click on the above link to read the rest of the article…

Oil Production Vital Statistics October 2017

Oil Production Vital Statistics October 2017

Last month I drew attention to the fact that the WTI-Brent spread had opened to $7 and that this could be a bullish signal for the oil price. A strong rally in Brent has since continued and the price now stands close to $64 / bbl while the spread remains at $6.50 (Figure 3).

The main reason for this sustained recovery is that the oil market has been brought back into balance thanks to a high level of compliance in the OPEC-Russia+others production cuts and continued growth in global demand for oil. There are several other factors discussed below which suggest that the oil price rally may continue.


[Inset image of the Ku Maloob Zaap production facilities offshore Mexico. Maintenance, delayed by Hurricanes, underlies falling production. When injected nitrogen hits the producing wells, production will collapse.]

The chart below from the October 2017 IEA OMR shows how in the course of 2017 the oil market has been brought back into balance. There is still a vast >3 billion barrels of crude and refined products in storage within the OECD, but the very fact that storage capacity no longer has to grow is bullish since this avoids the scenario where tanker loads have nowhere to go (full storage) which can dump the price.

One reason it has taken so long for the production cuts to work is that production in both Libya and Nigeria have recovered from lows (Figure 17), caused by civil unrest, adding over 1 Mbpd to OPEC supply. Both are now on cyclical highs and are unlikely to rise much further. Indeed, the normal direction post-high is downward. At worst, the Libya – Nigeria market drag should now become neutral.

…click on the above link to read the rest of the article…

Norway and UK Production Update

Norway and UK Production Update

Short-term trends for UK oil and gas production and, to a lesser extent, Norway can be rendered a bit meaningless by seasonal impacts from summer maintenance turn-arounds and cyclic gas demand. Overall, though, both are at or approaching the tail end of the production curve, but with slight upticks in the nearer term. Barring several large and unlikely new discoveries over the coming years the industry will continue winding down in both countries, with the UK ahead of Norway, and exploration and development leading operations and finally decommissioning. However some Norwegian gas production still has a multi-decade plateau to come and there are a couple of large oil projects due on-line in each country which will run for twenty to thirty years.

norway drilling and discoveries

chart/

The usual patterns of exploration wells and discoveries following a bell curve that is matched by a later development curve (see below for the UK example and note that production is in cubic meters as it fits on a common axis better that way) is not seen so much in the Norwegian numbers. There are a number of reasons for this: 1) the wells and discoveries shown are for oil and gas and Norwegian gas development has been several years behind oil; 2) Norway really has three basins which have been explored somewhat sequentially – the North Sea, then the Norwegian Sea and then the Barents Sea; 3) the NPD includes as discoveries ‘hydrocarbon shows’ which will never be developed and skew the numbers, additionally in the chart the large number of ‘not evaluated’ finds in recent years will mostly become ‘unlikely to be developed’; 5) in the past Norwegian governments has made efforts to spread development of the resources through approval and leasing timing; 6) I think there are tax breaks in Norway that encourage exploration drilling even at low oil prices and low discovery rates; and 7) the chart shows numbers of discoveries rather than size, which would show a much clearer bell curve.

…click on the above link to read the rest of the article…

Norway’s Oil Sector Faces Existential Crisis

Norway’s Oil Sector Faces Existential Crisis

Norway

Oil companies have recently focused on frontier exploration drilling in the Barents Sea offshore in Norway, neglecting the powerhouse of the Norwegian oil industry, the North Sea.

Exploration activity in the North Sea—the most mature area of Western Europe’s biggest oil producer—is at an 11-year low this year, which is a concern for the industry’s regulator, the Norwegian Petroleum Directorate (NPD).

“That worries me,” NPD Director General Bente Nyland told Bloomberg in a recent interview, voicing the industry concern that without new oil discoveries, especially in mature areas with well-connected infrastructure, the decline in Norway’s oil production would be even bigger than expected.

Following a continual decline between 2001 and 2013, Norway’s crude oil production rose last year for the third year running, but according to the Norwegian Petroleum Directorate (NPD), oil production this year would be nearly half the volume from the peak in 2000-2001.

Two huge fields discovered in 2010 and 2011, Johan Sverdrup in the North Sea, and Johan Castberg in the Barents Sea, are expected to start operations in 2019 and 2022, respectively, and will lift Norway’s oil production in the early 2020s compared to expected declines in 2018 and 2019.

But after 2025, production and activity are expected to significantly drop off unless there are new discoveries, according to oil major Statoil.

Related: Trump’s China Trip To Reap Billions In Energy Deals

Norway’s Ministry of Petroleum and Energy, and NPD say:

“Production from new fields that come on stream will compensate for the decline in production from ageing fields. However, in the longer term, the level of production will depend on new discoveries being made, the development of discoveries, and the implementation of improved recovery projects on existing fields.”

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U.S. Oil & Gas Rig Count Falls As Brent Breaks $60

U.S. Oil & Gas Rig Count Falls As Brent Breaks $60

Oil

As Saudi’s comments regarding the OPEC extension send the Brent Crude benchmark over $60 in mid-day trading for the first time in more than two years, oil and gas rigs in the United States fell for yet another week, according to Baker Hughes, dipping 4 rigs.

The total oil and gas rig count in the United States now stands at 909 rigs, up 352 rigs from the year prior, with the number of oil rigs in the United States increasing by 1 this week and the number of natural gas rigs decreasing by 5. Canada saw a decline of 11 in the number of active oil and gas rigs. The US oil rig count now stands at 737.

The spot price for WTI is also trading up to its highest level in six months, up 2.07% on the day at $53.73 at 12:30pm EST. Brent crude was trading up 1.61% at $59.99 at that time—more than $2 over last week’s close.

The price increase is largely thanks to Saudi Crown Prince Mohammed bin Salman’s non-specific backing of an extended OPEC deal, reassurances that the Aramco IPO is still on track, and his commitment to move the country beyond fossil fuels. Fears that the Iraqi vs. Kurd conflict may not find a quick end also lent support to prices.

US crude oil production was up for the week ending October 20, after falling by almost a million barrels daily for the week prior. Oil production for the week ending October 20 was 9.507 million barrels per day, as things return to normal post-hurricane.

At 20 minutes after the hour, WTI was trading at $53.77, with Brent crude trading at $60.02.

…click on the above link to read the rest of the article…

U.S. Deepwater Offshore Oil Industry Trainwreck Approaching

U.S. Deepwater Offshore Oil Industry Trainwreck Approaching

The U.S. Deepwater Offshore Oil Industry is a trainwreck in the making.  The low oil price continues to sack an industry which was booming just a few short years ago.  The days of spending billions of dollars to find and produce some of the most technically challenging deep-water oil deposits may be coming to an end sooner then the market realizes.

Drilling activity in the Gulf of Mexico hit a peak in 2013 when the price of oil was over $100 a barrel.  However, the current number of rigs drilling in the Gulf of Mexico has fallen to only 37% of what it was in 2013.  This is undoubtedly bad news for an industry that fetches upward of $600,000 a day for leasing these massive ultra-deepwater rigs.

One of the largest offshore drilling rig companies in the world is Transocean, headquartered in Switzerland.  They lease ultra-deepwater rigs all over the globe.  When the industry was still strong in 2014, nearly half of Transocean’s fleet of 27 ultra-deepwater rigs were leased in the Gulf of Mexico.  Even though Transocean was quite busy that year, its ultra-deepwater rig utilization was 89% during the first half of 2014, down from an impressive 95% in 1H 2013.

The term utilization represents the total number of working rigs in the fleet.  So, in 2013, Transocean had 95% of its rigs busy drilling oil wells.  But if we look at the following chart, we can see the disaster that has taken place at Transocean since the oil price fell by more than 50%:

Currently, Transocean’s ultra-deepwater rig count has dropped to a low of 12 versus 27 in 2014.  And it’s even worse than that.  Since 2014, Transocean added three more new rigs for a total number of 30.  Thus, Transocean’s ultra-deepwater rig utilization is down to a stunning 37% compared to 95% just four years ago.  So, when a rig isn’t working, it’s not making revenue.

…click on the above link to read the rest of the article…

Norway Unfazed By Peak Oil Concerns

Norway Unfazed By Peak Oil Concerns

Oil

When crude oil demand will peak is anyone’s guess. Forecasts vary widely. Wood Mackenzie says that peak demand is “very real,” and sees a decline of 4 million bpd between 2020 and 2035. Other majors including BP and Total SA see peak demand as coming between 2025 and 2040, as a result of clean energy government initiatives, slower economic growth, and wider use of electric vehicles.

Not everyone is that concerned with peak oil demand, however. Recently, Norway’s Energy Minister said the biggest problem for Europe’s largest oil and gas producer is satisfying near-term demand, which is growing faster than Norwegian continental shelf operators are making discoveries.

It might sound a bit weird that Europe’s greenest country is still so big on oil and gas, but in reality, there’s nothing weird: Oil and gas exports account for a substantial portion of Norway’s export revenues, with their value for 2016 standing at $43.84 billion (350 billion crowns), accounting for 47 percent of the country’s total export value.

Norway’s biggest customer is the European Union. Together with Saudi Aramco, Norway’s state major Statoil accounted for a fifth of the EU oil market last year. Yet demand in the EU is supposed to be falling, with rigorous policies designed to encourage acceleration of the shift to renewable energy.

Indeed, according to European Union statistics, demand is on a stable downward curve thanks to greater energy use efficiency, “structural changes in the economy”, and lower demand for fuels. Still, Eurostat notes, crude oil and its derivatives account for the biggest share of energy consumption in the 28-strong union.

That’s good news for Norway, and there’s more good news from Wood Mackenzie. The energy consultancy has forecast that although in places like Europe, Japan, the United States, and even China, crude oil consumption will plateau by 2035, the demand for petrochemicals will jump considerably.

…click on the above link to read the rest of the article…

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