Wednesday, July 1, 2015 -- Part I: The Bakken

IPs for wells coming off confidential list today have been posted.

Active rigs:

	7/1/2015	07/01/2014	07/01/2013	07/01/2012	07/01/2011
Active Rigs	76	189	192	215	172

RBN Energy: natural gas from Texas to Mexico.

Natural gas exports to Mexico are on a tear, and there’s every reason to believe the market will continue to grow. In essence, parts of the Eagle Ford and Permian Basin are becoming the go-to fuel source for new power plants and industrial facilities south of the border, as evidenced by a Howard Energy Partners plan to build new, connecting pipelines to deliver large volumes of gas directly from South Texas to emerging demand centers in and around Monterrey, Mexico. Howard’s also been addressing some of Texas’s gas gathering and processing needs. Today, we consider the latest plan to add gas pipeline capacity across the Rio Grande.

Despite Mexico’s long-term potential as a world-class natural gas producer, the U.S.’s vecino del sur (that’s “southern neighbor” to our monolingual readers) is becoming increasingly dependent on Texas, New Mexico and Rockies gas to meet its fast-growing requirements. 

Mexico’s most promising shale plays (the Burgos and Sabinas basins just south and west of the Eagle Ford) are said to be geologically complex (in other words, tough to figure out from a gas-extraction perspective). These areas also lack the road and water infrastructure that development would require, and (thanks to drug-cartel gangs) they can be pretty risky places to do business. So for muchas mañanas to come, U.S. gas producers will be playing a critical role in supplying the fleets of new gas-fired power plants that the Comisión Federal de Electricidad (CFE, Mexico’s state-owned electric utility) and independent power companies are building and planning.

Mexico’s appetite for imported gas has been growing even more quickly than many had predicted; according to the U.S. Energy Information Administration (EIA), U.S. producers sent an average of 2.57 Bcf/d south of the border in March 2015 (the latest month for which those figures are available), up 37% from the 1.87 Bcf/d exported in March 2014. (According to a published report, Mexican imports spiked to 3.4 Bcf/d on June 12, 2015 --57% higher than the 2.17 Bcf/d average in June 2014—and it’s widely expected that deliveries of U.S. gas to Mexico will surpass 4.5 Bcf/d over the next few years.)

Seems like Mexico can’t build new capacity from the U.S. quickly enough; as soon as a new pipeline comes online, it gets filled and U.S. gas export levels ratchet up to another new high. (Kinder Morgan’s new Sierrita Lateral from near Tucson, AZ to the Mexican border being a recent example.)

That brings us to Howard Energy Partners (HEP), which has been artfully assembling a gas gathering, processing and transmission network that—with HEP’s latest plan—will extend deep into northeastern Mexico’s state of Nuevo León, whose capital is Monterrey (Mexico’s third-largest city).

Over the past four years, HEP (which is “financially partnered with” EnLink Midstream and Alinda Capital Partners) has built up significant but geographically focused midstream gas assets in South Texas, including its Webb County, TX hub system in the southern Eagle Ford (near the Mexican border; Webb’s county seat is Laredo—hence our blog’s title). The system consists of more than 280 miles of gathering pipelines (for rich and lean gas), and 200 MMcf/d of gas processing capacity (at HEP and EnLink’’s new Reveille plant; black plant icon on the map); producers Escondido Resources II and Laredo Energy hold long-term gas gathering and processing contracts at Reveille.

Coincidentally, Seeking Alpha had a similar story yesterday:

• Natural gas exports to Mexico are expected to increase by over 2.1 bcf/d in 2015 to about 4 bcf/d.
• The first US LNG export facility (Sabine Pass) is expected to go online at the end of 2015.
• Approximately 7 bcf/d of US LNG export capacity is already under construction. Most is expected to come online in late 2017 to late 2018.
• Approximately another 7 bcf/d in US LNG export facilities already have long-term delivery contracts. Experts believe they will make the financial decision to build in 2015 despite low oil. 

Fracking, from San Antonio Business Journal:

Six-year low crude oil prices may have decimated new drilling activity, but market indicators show there is a more intense use of frac sand in the new wells that remain in the Eagle Ford and other shale plays.

Mostly mined in Wisconsin and other northern states, frac sand is mixed with water and different chemicals to fracture shale formations in order to unleash oil and natural gas reserves.

A June 11 report from global investment bank Jefferies shows that overall demand for frac sand is down in 2015 due to low oil prices but its use per well has been steadily increasing over the past three years.

Jefferies reported that hydraulic fracturing wells in the United States currently use an average of 4.2 million pounds of frac sand per well but there is a "rising intensity" across different shale plays and that demand per well is expected to grow.

A recent report about frac sand by the Chicago-based Heartland Institute confirms the trend noting that silica sand made up 9.5 percent of fracking fluid a few years ago but can now represent up to 20 percent of fracking fluid during horizontal drilling activity.

Regular readers of the blog were aware of this for quite some time. For newbies, the history in North Dakota:

• at the beginning of the boom, open hole fracks with less than 500,000 lbs proppant
• operators took baby steps to one million lbs proppant
• Statoil surprised the industry with consistent early use of 4 million lbs of proppant which they still tend to use
• EOG blew the industry standard away when they started using 8 to 10 million lbs of sand (only) in 2014
• the record amount of sand EOG has used in one well is about 20 million lbs, and that was a simply long lateral (2014)