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Oil Crash Exposes New Risks for U.S. Shale Drillers

Tumbling oil prices have exposed a weakness in the insurance that some U.S. shale drillers bought to protect themselves against a crash. At least six companies, including Pioneer Natural Resources Co. (PXD) and Noble Energy Inc. (NBL) , used a strategy known as a three-way collar that doesn’t guarantee a minimum price if crude falls below a certain level, according to company filings. While three-ways can be cheaper than other hedges, they can leave drillers exposed to steep declines. “Producers are inherently bullish,” said Mike Corley, the founder of Mercatus Energy Advisors, a Houston-based firm that advises companies on hedging strategies. “It’s just the nature of the business. You’re not going to go drill holes in the ground if you think prices are going down.” The three-way hedges risk exacerbating a cash squeeze for companies trying to cope with the biggest plunge in oil prices this decade. West Texas […]

Posted On : Published By : Tom Whipple
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Bakken Oil Transport Still Not Safe

New Regulations Don’t Go Far Enough to Protect the Public Helicopter view of the Lac-Mégantic rail disaster | Image courtesy of Sûreté du Québec: CC BY-SA 1.0 When the North Dakota Industrial Commission issued its landmark ruling last week concerning the conditioning of oil, it appeared that they were making a serious move towards improving the safety of transporting crude out of the Bakken. But according to an article in the StarTribune, the new regulations, which go into effect April 2, 2015, won’t bring the industry any closer to a solution for a serious problem that is drawing fire from legislators, concerned citizens and environmental groups. Alan Stankevitz, an expert on the DOT 111 tanker car, explains in the StarTribune that the standards set by the commission, which includes Gov. Jack Dalrymple, are not enough to adequately address the problem. The order establishes new regulations that demand facilities to […]

Posted On : Published By : Tom Whipple
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Exxon Mobil Shows Why U.S. Oil Output Rises as Prices Plummet

Crude oil production from U.S. wells is poised to approach a 42-year record next year as drillers ignore the recent decline in price pointing them in the opposite direction. U.S. energy producers plan to pump more crude in 2015 as declining equipment costs and enhanced drilling techniques more than offset the collapse in oil markets, said Troy Eckard, whose Eckard Global LLC owns stakes in more than 260 North Dakota shale wells. Oil companies, while trimming 2015 budgets to cope with the lowest crude prices in five years, are also shifting their focus to their most-prolific, lowest-cost fields, which means extracting more oil with fewer drilling rigs, said Goldman Sachs Group Inc. Global giant Exxon Mobil Corp. (XOM) , the largest U.S. energy company, will increase oil production next year by the biggest margin since 2010. So far, the Organization of Petroleum Exporting Countries’ month-old bet that American drillers […]

Posted On : Published By : Tom Whipple
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KKR Stumbles on Shale Deal

ENLARGE George Roberts, co-chief executive officer of KKR & Co. Bloomberg News Shortly after bagging big profits on a Pennsylvania drilling deal, George Roberts traveled to Houston to meet with the banker who had brought the prospect to his private-equity firm, KKR & Co. Mr. Roberts, KKR’s co-founder, asked about other opportunities in shale drilling. Ralph Eads unfurled maps on a conference-room table and pointed out the country’s emerging drilling fields. “We want to be your first call,” Mr. Roberts told the Jefferies Group LLC banker. KKR went on to complete a couple of relatively small but hugely profitable shale deals before Jefferies in 2011 pitched the big one: Samson Investment Co., one of the largest closely held energy producers in the U.S. KKR bit, in the biggest-ever buyout of an oil-and-gas company. Now, the investment is deep in the red, as falling oil prices amplify struggles Samson has […]

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No Easy Answers When Disposing of Oil and Gas Wastewater

We all want easy answers. And often times the harder the question, the easier we want the answer to be. Source: Nicholas A. Tonelli Flickr Increased natural gas use, for example, can help decrease U.S. greenhouse gas emissions as it has a lower carbon content compared to coal or oil. Natural gas also can help transition our energy mix to more renewable energy sources. This is because properly designed, gas-fired generation can respond quickly to pick up the slack if the wind suddenly dies or clouds unexpectedly roll in. But, these benefits mean nothing if the communities where gas is produced suffer air and water pollution, or if methane – a powerful global warming pollutant that is the primary ingredient in natural gas – is allowed to leak into the atmosphere unchecked. We all should be worried about global warming and the role that sloppy oil and gas production […]

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Bush School Student Study: Hydraulic Fracking In Texas Could Intensify Water Shortages

A new economic and policy analysis concludes that the hydraulic fracturing (HF) or “fracking” being done in Texas is adding to the state’s overuse of its water resources, but is only part of the state’s water problem. Related Links COLLEGE STATION – A new economic and policy analysis concludes that the hydraulic fracturing (HF) or “fracking” being done in Texas is adding to the state’s overuse of its water resources, but is only part of the state’s water problem. A recent study conducted by students at the Bush School of Government and Public Service at Texas A&M University has been summarized in “The Takeaway,” published by the school’s Mosbacher Institute for Trade, Economics, and Public Policy. HF is a drilling process which uses a mixture of water, sand and chemicals to create small fractures which creates paths that allow oil and gas to be produced from reservoir formations at […]

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New Regulations for Oil Transportation in the Bakken

Will tougher regulations for oil transport create a safer environment? Commission Adds New Restrictions for Oil Transports In an effort to improve the safety of crude production in the Bakken region, the North Dakota Industrial Commission issued an order on December 9th that will impose new regulations on oil producers. The order (no. 25417) is the result of an investigation that began at an emotionally charged hearing in September. Over the past two months, commission members Gov. Jack Dalrymple, Attorney General Wayne Stenehjem and Agriculture Commissioner Doug Goehring considered oral and written comments from technical witnesses, manufacturers, land/royalty owners and the general public. The new regulations will go into effect on April 1, 2015 and require that all new wells in the Bakken Petroleum System utilize equipment that controls vapor pressure in order to lessen the likelihood of explosions during transportation. This order comes as a series of troublesome […]

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North Dakota funds economic diversity effort

Federal grants support economic diversification strategies in oil-rich North Dakota. Photo by Calin Tatu/Shutterstock BISMARCK, N.D., Dec. 16 (UPI) — Grants totaling more than a quarter of a million dollars will help communities across North Dakota diversify their economy, U.S. Sen. John Hoeven , R-N.D., said. Hoeven said the U.S. Economic Development Administration funneled grants totaling $310,000 to the state for economic diversification assistance . "These grants will help to develop and diversify the economies of communities across North Dakota," said Hoeven. "This builds on our work to create good jobs for our people and ensure our state’s economy is healthy and strong now and into the future." North Dakota’s economy grew last year faster than any other U.S. state in terms of real growth in gross domestic product. The U.S. Commerce Department said in a state-by-state review North Dakota can credit the extractive industries for a sizable portion […]

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Kemp: Past Oil Price Slumps Show US Drillers’ Inertia

The most important characteristic of the US oil industry is inertia – or to put it another way, drilling and production respond sluggishly even to a large change in prices, John Kemp says. John Kemp is a Reuters market analyst. The views expressed are his own LONDON, Dec 15 (Reuters) – The most important characteristic of the U.S. oil industry is inertia – or to put it another way, drilling and production respond sluggishly even to a large change in prices. Since 1974, there have been four episodes in which oil prices declined sharply over a relatively short time (ignoring the brief price spike and equally rapid reversal in 1990 associated with preparations for the first war between the United States and Iraq). These price slumps occurred between (1) December 1985 and July 1986; (2) January 1997 and December 1998; (3) November 2000 and December 2001; and (4) July […]

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Will the Bakken Red Queen Outrun the Growth in Water Cut?

This is a guest post by Rune Likvern  Who’s Website is: Fractional Flowa This post presents a closer examination of actual data on Light Tight Oil (LTO) extraction, developments in water cut and Gas Oil Ratio (GOR) for some pools and individual wells in the Middle Bakken and Three Forks formations in North Dakota. LTO extraction’s primary drive mechanism is (differential) pressure and there are some noticeable trends for LTO extraction from Bakken: LTO productivity (measured as average totals by vintage) in 2014 have increased, most notably from the Middle Bakken formation which has better well productivity than Three Forks. There are differences to LTO productivity developments amongst the pools. Water cut; generally increases as the wells ages. An indicator for depletion. Water cut; generally increases for newer wells. This suggests that the areas with the highest oil saturation has been developed. Gas Oil Ratio (GOR, produced and expressed […]

Posted On : Published By : Tom Whipple