OGI This Week
Effects: The impact of short-, medium- and long-term oil price recoveries on investments in ethane crackers in North America was assessed in a recent report. Other petrochemicals, including polypropylene, could also be affected in the long term. Anticipation: Hart Energy’s Stratas Advisors predicted earlier this summer that Keystone XL permitting would be rejected before the Labor Day weekend. The Canadian press recently ran similar reports. Infrastructure giant TransCanada can resubmit its application for approval in 2016 if Keystone is rejected. Trending Down: For the first time, natural gas production across all major U.S. shales could decline this September, the U.S. Energy Information Administration said in a report. Fewer rigs and a drop in legacy production will chip away at the Marcellus and other large gas shales.
Insecure: Hackers now use malware via phishing emails, compromised credentials and other tactics to wage more sophisticated cyberattacks on the oil and gas industry. Walter Energy was a recent target in the theft of hundreds of corporate earnings announcements. Rocky: With about 950 earthquakes so far this year, Oklahoma outranks California as one of the most seismically active states. Injecting wastewater into the Arbuckle Formation triggered the uptick in quakes, an expert said. Overkill? Because the oil and gas industry has successfully reduced greenhouse-gas emissions, some energy trade groups called the Environmental Protection Agency’s recent proposed emissions guidelines unnecessary.
Silver Lining: Oil prices recently fell to a six-year low. However, the International Energy Agency forecasts that global oil demand for the rest of the year will grow by 1.6 million barrels per day. Value: Energy stocks are currently cheap compared to other equities, according to a senior equity strategist at CIO Wealth Management Research Americas. Even so, energy investments—especially in MLPs—will require careful consideration because prices are so low. Geography: Three quick factors to buoy hopes for higher oil prices:—1. The U.S. currently has the largest supply of natural gas. 2. The U.S. has a variety of international energy sector clients. 3. North America as a whole produces more barrels of oil equivalent than OPEC’s top three countries.
Exit: David M. Hall, COO of Miller Energy Resources Inc., resigned after the Securities and Exchange Commission charged that the company fraudulently overstated the value of a 2009 Alaska acquisition. Resource: Alternative capital sources include hedge funds and sale of royalty interests. Understanding the risks and benefits is crucial, Jones Day partners and associates say. Ahead: Midstream deals comprised 21 of the 47 deals with values above $50 million, according to analysis of second-quarter transactions. Upstream deals were down another 20% in July.
Waiting: The price of oil will stay low until there is evidence that the oversupply of oil is shrinking, a study concluded. So far, prices in the U.S. have not fallen far enough to affect the oversupply. Falling: The supply-demand imbalance meant ExxonMobil’s second-quarter profit dropped by half, to $4.2 billion from last year’s $8.8 billion. Reducing: Chevron will lay off about 1,500 people, or about 2% of its global workforce. Of the total, 950 jobs will be in Houston, and 500 will be in San Ramon, Calif.
Any Takers? There is currently a surplus of proppant in North America, and the most in-demand type is frack sand. However, through the rest of the year, overall proppant consumption will decrease by 23%. Reduced: E&Ps were awarded fewer permits in the second quarter of this year. The decline was steepest in the Eagle Ford, Permian Basin and Bakken, with 13%, 5% and 14% decreases, respectively. Money And Rules: Oil, natural gas and coal companies are not required to pay for economic damage caused by carbon emissions, according to authors of a University of Cambridge research paper.
Portent: Schlumberger said North American E&P spending could fall by 35% during the remainder of the year. The oil markets are rebalancing, and in some basins pricing has fallen to unsustainable levels. Lackluster: Lower prices and profits dampened Mexico’s much-anticipated Round One shallow-water Gulf of Mexico oil block auction. Out of 14 up for bidding, eight received no bids and four had bids thrown out. Haven: With more than $2 billion in debt, Sabine Oil & Gas recently filed for Chapter 11 bankruptcy. Prior to its merger with Sabine last year, Forest Oil Corp. incurred heavy debt.
Analysts’ Outlook: The domestic rig count is stabilizing, mid-year spending from majors to small-caps was cut by more than one-third and energy companies fear a further price drop, according to three surveys. Winter Is Coming: There are 2,577 billion cubic feet of natural gas in storage across the U.S., 35% more for this winter than last year, the Energy Information Administration said. Intellectual Property 101: Charlotte Rutherford, intellectual property expert, discussed the murky world of patents at Hart Energy’s recent DUG Permian conference. There is more than $700 billion in industry intellectual capital, including patents, but capital for patents often sits idle.
Unprecedented: BP will pay about $18.7 billion to more than 400 local government entities, five states and the U.S. government in the largest oil spill settlement agreement of its kind. The Deepwater Horizon payout is subject to court approval. Wary: The global energy industry has become uneasy as surging oil and natural gas production occurs alongside geopolitical unrest, investment banker and author Tom Petrie told attendees at Hart Energy’s recent DUG East conference. The remainder of 2015 and the start of 2016 will be a time of dramatic industry shifts, he said. All In: The Ontario Teachers’ Pension Plan will buy CA$3.3 billion worth of royalty and mineral interests available when Cenovus sells subsidiary Heritage Royalty Ltd. Partnership’s 4.8 million acres of title lands in three Canadian provinces.
Cats And Dogs: Several operators in the Denver-Julesburg Basin in Colorado, including Bonanza Creek Energy, have been affected by road closures and even fallen behind schedule on projects due to very heavy rainfall. More, Please: Shale gas produced from North America—led by the Marcellus Shale—will be in highest demand outside the continent, according to forecasters, attendees at Hart Energy’s DUG East conference were told. Rolling On: The executive chairman of Burlington Northern Santa Fe LLC discussed the U.S. Department of Transportation’s recent ruling on legacy DOT-111 rail cars used to transport crude oil and ethanol. Electronically controlled pneumatic braking systems must be outfitted by Jan. 1, 2021.
Full Speed: A Harvard Business School/Boston Consulting Group joint project outlined specific ways the U.S. can maximize impact on economy and energy through abundant, low-cost unconventional oil and gas resources. Legal Matter: A $1 billion deal for Bakken acreage prompted a 2012 class action lawsuit by Native American plaintiffs, which was properly dismissed, the 8th U.S. Circuit Court of Appeals in North Dakota recently ruled. The Squeeze: A value gap between crude oil, NGL and natural gas prices is getting narrower, and it could negatively affect exports, Suzanne Minter, manager of energy analysis for Bentek, told an audience recently.
Sharper: Major U.S. shale plays have seen swift efficiency gains, doubling IP rates and reducing well drilling time and creating a tipping point for production growth as demand lags behind production, according to an expert at a recent symposium. Steeper: On average, E&Ps spent 16% more during 2014 to achieve aggregate revenue growth of 10% and oil and gas reserves growth of 8% and 7%. Varied: Governments of countries dependent on oil-related revenue are coping differently in the downturn. The U.K. rolled out tax cuts to foster North Sea competition; budgets in Russia and the U.S. fell; and Nigeria considers fiscal amendments with a new president.
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