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Expect U.S. oil output to slump? Better not overlook vertical wells

Easy money, super-sized frack jobs, and desperate drillers offering deep discounts to oil producers – all three have been credited for sustaining U.S. crude output during the worst price slump in six years. Now there appears to be a new factor in the mix: old vertical wells that can quickly be drilled, injected with water or fracked for a second time to increase production at low cost. Overshadowed by the fracking boom that delivered record oil and gas volumes, vertical wells are making a comeback as investors and producers shift focus away from production growth to capital discipline in the downturn. "It makes more sense to develop vertical wells in a lower price environment because they are not growth plays but they are a very strong cash flow asset," said Benjamin Shattuck, principal analyst at Wood Mackenzie. "They are going to give you that cash flow that you need […]

Posted On : Published By : Tom Whipple
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Low oil price reducing US offshore drilling interest: Secretary Jewell

Low oil and gas prices have lessened pressure from producers for the Obama administration to expand the plays it plans to offer in its five-year plan for offshore leasing, US Interior Secretary Sally Jewell said Tuesday. Prices have had a "significant impact" on efforts from the offshore industry to expand offshore leasing and likely diminished interest in last month’s Gulf of Mexico lease sale, Jewell said during a Christian Science Monitor event. That US Western Gulf sale yielded total high bids of $22.7 million, the smallest Western sale in over 30 years and just 20% of the $110 million yielded in last year’s comparable sale. Jewell said it was a "reasonable conclusion" that low prices caused that relatively low interest from producers and indicated interest in future lease sales likely would not grow if prices remained low. Oil and gas companies, she said, have become "pickier" about where they […]

Posted On : Published By : Tom Whipple
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Decline Rates Will Ensure Oil Output Falls in 2016

“It takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast,” the Red Queen told Alice in Lewis Carroll’s novel “Through the Looking-Glass”. Oil companies have to invest heavily simply to offset the impact of natural decline rates on their existing fields, and even more if they want actually to increase production. The need for continued investment and drilling to maintain output as a result of the rapid decline rates on shale wells has been widely discussed. But decline rates on conventional oil fields are even more important because they account for more than 90 percent of global production. Decline rates on conventional fields will play a critical part rebalancing the oil market and determining where oil prices settle in the longer term. Decline rates will cut output by several million […]

Posted On : Published By : Tom Whipple
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Analysts expect US crude oil stocks fell 200,000 barrels last week

US commercial crude stocks are expected to have decreased 200,000 barrels in the week that ended Friday, a survey of analysts showed Monday. The US Energy Information Administration is scheduled to release its weekly data at 10:30 am EDT (1430 GMT) Wednesday. The EIA five-year (2010-14) average shows inventories fell 270,000 b/d barrels for the same reporting period. Crude stocks typically decrease through the summer until late September, when demand drops because of the autumn refinery turnaround season. However, this year’s refinery activity has slowed down since early August, suggesting an early start to the maintenance period. Crude runs have fallen five weeks in a row. For the week ended September 4, the amount of crude processed equaled 16.1 million b/d, which was 6% below the summer peak of more than 17 million b/d at the end of July. Analysts do not believe refinery activity picked up last week. […]

Posted On : Published By : Tom Whipple
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North Dakota May Let More Oil Wells Be Temporarily Idled

WILLISTON, N.D., Sept 14 (Reuters) – North Dakota’s oil regulators said on Monday they may allow more wells to be temporarily abandoned, a step that would permit producers to delay fracking beyond the typical one-year window and prevent even more crude from flooding onto global markets. The change would fuel massive savings for oil producers in the state who have amassed a backlog of almost 1,000 wells that have been drilled but not completed with processes needed to get the oil flowing. The delays are designed solely to ride out the roughly 50 percent drop in crude prices since last year. Any regulatory change in North Dakota also would assuage market concerns about supply continuing to outstrip demand at a time when Iraq, Saudi Arabia and other OPEC members show little sign of curbing their own output. While no decision has been reached, the North Dakota Department of Mineral […]

Posted On : Published By : Tom Whipple
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U.S. shale oil production to fall for 6th straight month: EIA

Unused oil tank cars are pictured on Western New York & Pennsylvania Railroad tracks outside Hinsdale, New York August 24, 2015. Total U.S. shale oil production for October is forecast to decline by 80,000 barrels per day to 5.21 million bpd, compared with 5.29 million bpd in September, according to data released on Monday by the U.S. Energy Information Administration. The drop in October – the first in five months not to be bigger than the previous month’s – was slightly less than the 80,200 bpd decline in September, data shows. Production in the Eagle Ford is expected to fall for a seventh consecutive month, by 62,000 bpd to 1.42 million bpd, according to the EIA’s monthly drilling productivity report. Oil production from the Bakken region of North Dakota is expected to fall 21,000 bpd to 1.18 million bpd in October. It is the fourth month consecutive declines. In […]

Posted On : Published By : Tom Whipple
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Shale Drillers Pump More Oil From Each Well as Rigs Mean Less

Workers prepare drilling pipe on a deep sea crude oil platform in the waters off Veracruz, Mexico. Shale producers in the U.S. have learned to do more with less. Last year’s price crash forced drillers to cut budgets, reducing the number of rigs in U.S. oil fields by 59 percent from the peak. Crude production, though, has fallen only about 5 percent. Part of the reason for that is a spurt of innovation driven by desperation. Rig productivity increased last month in all shale oil plays, the Energy Information Administration said in a report Monday, as companies drill more wells in less time. Wells being drilled this month will be able to pump about 389,000 barrels a day of new production, down 39 percent from last November, a much shallower drop than the overall rig count, according to Austin, Texas-based Drilling Info Inc. “The amount of producibility per rig […]

Posted On : Published By : Tom Whipple
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Oil Patch Braces for Financial Reckoning

Magnum Hunter CEO Gary Evans says the company is selling a pipeline to raise cash. U.S. energy companies have defied financial gravity for more than a year, borrowing and spending billions of dollars to pump oil, even as crude prices plummeted. Until now. The oil patch is expected to finally face a financial reckoning, experts say, with carnage occurring as early as this month. One trigger: Smaller drillers are bracing for cuts to their credit lines in October as banks re-evaluate how much energy companies’ oil and gas properties are worth. But with oil trading below $45 a barrel, bigger oil outfits are struggling to stay profitable, too. Jim Flores, vice chairman of Freeport-McMoRan Inc., FCX -2.11 % which pumps oil in the Gulf of Mexico, explained the industry’s conundrum this way: “It’s raining and it’s going to rain for a long time. We’re all going to get wet. […]

Posted On : Published By : Tom Whipple
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To Understand The Oil Story, You Need To Understand Exports

Despite the attention-grabbing economic volatility that is grabbing headlines, it’s important to keep our eye on the energy story firmly in focus. This is especially true as the headlines we regularly read about Peak Oil being dead " are "manifestly false" according to this week’s podcast guest, petroleum geologist Jeffrey Brown. As concerning as the fact that global oil production has plateaued over the past decade, despite trillions invested in trying to goose it higher, are Brown’s forecasting model for oil exports. His Export Land Model shows how rising internal consumption can swing (and has swung) countries from major exporters to permanent importers within a dizzyingly short period of time: The crucial issue to understand about what has happened after 2005 is that we’ve had a very large increase in global gas production and natural gas liquids, but a much slower increase in crude plus condensate. So, what I […]

Posted On : Published By : Tom Whipple