Active Rigs Down To 111 -- March 11, 2015

Initial production numbers for the 26 Oasis wells coming off the confidential list are posted at this link. Wide range of results. 

Active rigs:

	3/11/2015	03/11/2014	03/11/2013	03/11/2012	03/11/2011
Active Rigs	111	192	187	206	173

Graphic here. 

RBN Energy: Gulf Coast pipeline.

The proposed 400 Mb/d Shell Pipeline Company Westward Ho pipeline from St. James, LA to Nederland, TX, was first touted in 2011 and initially expected to be in service by Q3 2015 but is now delayed at least until the end of 2017. The project is designed to replace the Shell Ho-Ho pipeline that used to ship crude from Louisiana to refineries on the Texas Gulf Coast until it was reversed in 2013. Westward Ho has struggled to attract shipper commitments to bring additional crude into the saturated Texas Gulf Coast market. Today we review the project’s rationale.

The original proposal was made in the context of SPLC’s plans to reverse their existing pipeline from Houma to Houston – known as Ho-Ho - in 2013. The Ho-Ho reversal came in response to rapidly escalating volumes of light domestic crude oil from shale showing up in Houston – initially from the Texas Eagle Ford and Permian Basins and then as more pipeline capacity opened up - from North Dakota and the Rockies via Cushing, OK. We have documented these flows of shale crude into the Gulf Coast region in numerous blogs. Because Houston area refineries are primarily configured to process heavier crude rather than light domestic shale it made sense to reverse Ho-Ho to provide a route to refineries in Louisiana that are configured to process lighter crudes. Given the demand for the Ho-Ho route and the fact that it was easier to reverse an existing pipeline than to build a new one, SPCL chose to reverse Ho-Ho first but at the same time announced they would build Westward Ho as a replacement pipeline for shippers moving crude from Louisiana to Houston.

SPLC are clearly anxious to get Westward Ho built – the terms of the second open season were understood to be more favorable to shippers because they offered shorter 3-5 year commitments rather than the 10, 15 or 20 years offered first time around. Reducing the scope of the project to just St. James to Nederland (leaving out Houston) reduces the capital cost and therefore the amount of shipper commitments required to get the pipeline off the drawing board. At the end of the day the success of the project in attracting shipper commitments comes down to whether GOM producers can compete in Port Arthur/Beaumont (and perhaps Houston if/when Westward Ho is extended) against the tide of light shale and heavy Canadian crude coming through all those other new pipelines. Barring any radical changes like a reversal of the regulations restricting crude exports, Texas Gulf Coast refiners will decide the answer to that question. If they invest to reconfigure their refineries to process lighter crude they will no longer need offshore domestic sour barrels. If they continue to buy sour barrels then producers and shippers will be more likely to make the necessary commitment to get Westward Ho built.