While US Independents have been under constant pressure to slow drilling down due to capital constraints caused by weak natural gas, natural gas liquids, and crude oil prices, the majors have continued to drill horizontal wells at the same pace as when oil prices were $100 per barrel. In the first 6 months of 2013, the majors consisting of ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), Shell (NYSE: RDS.A), BP (NYSE: BP), and ConocoPhillips (NYSE: COP) drilled a combined 693 horizontal wells, and in the first 6 months of 2014, those operators drilled 632 horizontals wells in the US. Through the first 6 months of 2015, the group has combined for 668 horizontal wells, nearly 5% more than in the same period of 2014 when crude oil prices averaged $101 per barrel compared to $53 per barrel in 2015.
While Shell has slowed its investments in US Shale plays from 2013 and eventually exited from the Eagle Ford and Sand Wash Basin, the rest of the majors have increased the number of horizontal wells drilled to offset Shell's exit. In recent months, BP has even increased drilling, further growing the number of horizontal wells from 1-2 per month to 12 in June with a focus on the Anadarko & Arkoma basins of Oklahoma. Additionally, in the Permian basin, all of the majors but BP are highly active drilling 22 horizontal wells in June and Chevron has continued to move forward with development plans hatched in 2013 and 2014 of its Wolfcomp and Bone Springs positions.
While ConocoPhillips has been the most price responsive in regards to US horizontal drilling activity, cutting wells counts from 55 in November to just 30 in June, it also recently cancelled a long term commitment to a new deep water drill ship (Link to Press Release) slated for operations in the US Gulf of Mexico by paying a $400M cancellation fee. As part of this cancellation, Conocophillips announced its intent to focus more investment on its onshore North American projects. Should other majors follow suit could we begin to see higher drilling activity levels throughout 2015 and into 2016?
Fairway Energy Partners, LLC (Fairway) announced that funding has officially closed on the construction of the first phase of the Pierce Junction Crude Oil Storage facility. Fairway is headquartered in Houston and is committed to growth in the crude oil storage market, focusing primarily on developing the Pierce Junction Crude Oil Storage facility. Fairway is strategically positioned as the only independent salt dome crude oil storage terminal in the Houston area.
Fairway has plans to use the funding to convert three of the eight existing underground storage caverns at the Pierce Junction Salt Dome into crude oil storage service, and to build out all the requisite pipelines, brine ponds, interconnects and pumping capacity to put the facility in commercial service. The Pierce Junction Salt dome is located in south Houston.
The initial phase of the projected is expected to begin by the end of 2016, and has been designed to allow for storage of three segregations of crude oil for a total capacity of approximately 10 million bbls. Fairway has expansion rights up to a total of approximately 20 million bbls at Pierce Junction.
Phase 1 also includes construction of two bidirectional 24-inch pipelines intended to connect Pierce Junction to the existing Houston area crude oil grid, adding more than one million bbls/d of pipeline receipt and delivery capability in the Houston marketplace. The proposed pipelines will trail approximately 21 miles across the Houston area to connect the caverns to the Genoa Junction and Speed Junction hubs. This will enable Fairway to provide receipt capability from inbound crude oil pipelines from the Permian and Eagle Ford Basins, Mid-Continent and Canadian regions and the Gulf of Mexico. The hubs will provide downstream connectivity to terminals, refineries and water outlets located in the Houston Ship Channel, Texas City and Beaumont/Port Arthur market areas.
Fairway will construct brine ponds with approximately 10 million bbls of capacity and central pumping and metering facilities at the site as a continued part of Phase 1. The project is designed as a closed system, minimizing any new air emissions as well as customers’ volumetric losses.
Following the completion of Phase 1, Fairway intends to take the project to its full capacity during the second phase, as they have secured the exclusive right to store crude oil on the Pierce Junction Salt Dome.
"This project will serve the growing crude oil storage needs driven by the significant delivery of new pipeline--delivered crude oil into and through the Houston market. We're offering a new, low--cost option to the market as a fee for service based provider. We do not intend to take title to the crude oil that we will handle and store, nor will we trade crude oil," said Fairway CEO Chris Hilgert. "We are delighted to have the continued support of our original financial sponsor, Haddington Ventures, LLC (Haddington), as well as the new investors in Fairway who were brought to us through the engagement and efforts of FBR."
Haddington played a major role in the funding transaction, and will continue as a major investor in Fairway.
"We are very excited about our investment in Fairway," remarked Chris Jones, managing partner of Haddington. "Our long history with underground storage fits well with Fairway’s initiative and we look forward to continuing our involvement with the company to advance this critical project into the marketplace."
SACRAMENTO, Calif. (AP) — Gov. Jerry Brown says he's created a panel to study how California should monitor hydraulic fracturing for oil and gas.
The panel will review a state-ordered fracking study released this month that found some of the chemicals used in California's fracking boom likely pose a risk to public health. It said the state has failed to track them.
The study ordered by state lawmakers also urged greater oversight of fracking and other intensive oil field production methods.
The panel announced Wednesday combines personnel from nine different state agencies.
It comes as the Democratic governor is at the Vatican for talks on climate change, where he implored world leaders to reduce the use of fossil fuels. But Brown has faced criticism at home from environmentalists for continuing to allow hydraulic fracturing.
Source: AP (via PennEnergy.com)
The discovery well 2/4-23S, drilled by Maersk Gallant, proved gas and condensate in the Ula formation. Statoil estimates the volumes in Julius to be between 15 and 75 million barrels of recoverable oil equivalent.
The well 2/4-23S aimed also to appraise the King Lear gas and condensate discovery made by the PL146/PL333 partnership in 2012.
The well provided important information on reservoir distribution and reservoir communication in the King Lear discovery. The acquired data will now be further analysed.
It is expected that the King Lear volumes will stay within the previously communicated range of 70-200 million barrels of recoverable oil equivalent.
“The King Lear and Julius discoveries are located in one of the most mature parts of the Norwegian continental shelf - just 20 kilometres north of Ekofisk, the first commercial NCS discovery made 45 years ago. The discoveries confirm Statoil’s view that even such mature areas of the NCS still have an interesting exploration potential,” says May-Liss Hauknes, Statoil vice president for exploration in the North Sea.
“Since the King Lear discovery, the main focus of the licence partnership has been to clarify the resource basis within PL146/PL333. Following the positive results of the Julius well, the partnership will start working on an optimal plan for a timely development of the discovered resources. The Julius discovery will be included in the resource base for a future PL146/PL333 development decision,” says Edward Prestholm, acting head of early phase field development on the NCS in Statoil.
JASON DEAREN, Associated Press
On a vast tract of old North Carolina farmland, crews are getting ready to build something the U.S. South has never seen: a commercial-scale wind energy farm.
The $600 million project by the Spanish firm Iberdrola Renewables LLC will put 102 turbines on 22,000 acres (8,900 hectares) near the coastal community of Elizabeth City, with plans to add about 50 more. Once up and running, it could generate about 204 megawatts, or enough electricity to power about 60,000 homes.
It would be the first large onshore wind farm in a region with light, fluctuating winds that has long been a dead zone for wind power.
After a years-long regulatory process that once appeared to have doomed the plan, Iberdrola spokesman Paul Copleman told The Associated Press that construction is to begin in about a month.
Right now, there's not a spark of electricity generated from wind in nine states across the Southeast from Arkansas to Florida, according to data from the American Wind Energy Association, an industry trade group.
But taller towers and bigger turbines are unlocking new potential in the South, according to the U.S. Department of Energy, and the industry is already looking to invest.
CAMP LEJEUNE, N.C. (AP) — Duke Energy Corp. is breaking ground on a solar energy farm on the East Coast's largest Marine Corps base as the military diversifies from petroleum power.
The country's largest electric company is starting construction Friday at Camp Lejeune on a 13-megawatt solar array on 100 acres. The project's goal is helping the Navy and Marines meet their energy and security goals while furthering Duke Energy's renewable energy holdings.
The Navy has decided its reliance on oil is a national security problem and plans to produce at least half of its on-shore energy needs from alternative sources by 2020.
Duke Energy is required by state law to generate 12.5 percent of its electricity from renewable sources by 2021. Duke is investing about $500 million on three other North Carolina solar projects.
Source: Associated Press & PennEnergy.com
HOUSTON (AP) — Halliburton's second-quarter profit dropped as it dealt with some charges tied to the oil market slowdown. But the company's adjusted results easily topped analysts' estimates.
Its stock climbed more than 3 percent in Monday premarket trading.
Halliburton, a provider of drilling services to oil and gas operators, earned $54 million, or 6 cents per share, for the period ended June 30. A year earlier the Houston company earned $774 million, or 91 cents per share.
Halliburton said that the current quarter included charges of 30 cents per share tied primarily to severance costs and asset write-offs that were mostly the result of the recent downturn in the energy market.
MATTHEW BROWN, Associated Press
BILLINGS, Mont. (AP) — A proposed fee for some Montana-Dakota Utilities customers who use their own wind or solar power has drawn opposition from renewable energy backers who say the company is trying to stifle small-scale electricity generation.
The Public Service Commission said the fee is unprecedented for customers who use "net-metering," which allows homeowners or businesses to sell excess power they generate back to the grid in exchange for credit on their bills.
It's built into a 21-percent rate increase that's proposed for about 26,000 eastern Montana customers. The Bismarck, North Dakota-based utility says it needs additional revenue to cover its increasing costs, including $400 million in pollution controls at coal plants in Montana and South Dakota.
We have commented in the past on what we believe to be a major problem for the energy business, which is the large pool of private equity funds seeking investment opportunities. That money may merely extend the current difficult environment for the business. Our view is that much of this money will wind up supporting weak companies that should be eliminated or consolidated in order to help reduce industry capacity and accelerate the recovery that is necessary in order for the industry to return to profitability. This does not mean that all energy-focused private equity funds are poor investments or that all their investments will fail, but normally when so many dollars are seeking investment opportunities, future returns shrink and losses often become the norm rather than outsized profits. A recent story in The Wall Street Journal discussing the travails of First Reserve’s two recent multi-billion dollar private equity energy funds highlight this conundrum.
First Reserve may be the oldest energy-dedicated private equity fund having been founded in 1983 by John Hill, an Energy Department undersecretary in the Ford administration, and William Macaulay, an investment banker with Oppenheimer & Company. (In full disclosure, we know Mr. Macaulay and our prior employers did business with First Reserve.) These two gentlemen were early in seeking energy industry investment opportunities, starting during the industry’s first significant bust – the mid-1980s, oil-price-induced collapse. For those who experienced that period, many energy companies were victims of overleveraged balance sheets that were unsupportable when asset values collapsed in response to the dramatic oil price decline orchestrated by Saudi Arabia and the subsequent drop in activity. Often there were solid businesses underlying the debt debris, but many times the good and bad were both destroyed. During the mid- to late-1980s, by working with the banks to restructure loans and through judicious use of the U.S. bankruptcy courts, balance sheets of companies in the energy business were restructured.
First Reserve Billion Dollar Funds Struggling
Halliburton President Jeff Miller described the current US rig count as "scraping along the bottom" this morning.
After a 40% fall during the second quarter, the US land rig count has trended essentially sideways for the past several weeks. So what happens next? Here's what Halliburton thinks the path forward in their North American business looks like:
"The exact timing is difficult to predict, but the previous cycles would point us to the following progression of how the story should play out as we move forward. First, activity stabilizing means the healing process can begin with respect to pricing and margins. This will then allow our cost savings to catch up and our efficiency programs and well solutions can begin driving margins up. Price improvement will then be a challenge until we see capacity tightening in the market. Therefore, any margin improvement will likely be the result of lowering our cost base." (Jeff Miller, Halliburton)
Weekly Rig Count Statistics
The North America rig count rose 17 units last week, driven by gains in Canada. In the US onshore market, rig count was down 3 units as horizontal oil drilling fell slightly.
While the weekly figures will ebb and flow and another leg down in oil prices would restart a negative trend, we believe the trough has now been effectively established for this phase of the downturn (in the 800-850 range).
In Canada, the rig count had a strong week, gaining 23 rigs to 192 for the week. The strength is seasonally expected. Read more...
Billie Hanley, Managing Director of GlobalOne EPC.
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