Friday, September 11, 2015

Active rigs:

	9/11/2015	09/11/2014	09/11/2013	09/11/2012	09/11/2011
Active Rigs	69	198	180	193	199

RBN Energy: dreaming of a white Christmas.

U.S. natural gas production has been essentially flat this summer as many producers curtailed, deferred or delayed drilling and well completions earlier in the year. However, some of the same producers, particularly in the Northeast, in their most recent earnings calls, indicated they expect to meet their 2015 production targets by increasing output this winter. In today’s blog, we look at how and why producers defer production and the potential impacts on the market in Q4.

It’s not surprising that some gas producers deferred well completions this summer. Rates of return have been squeezed all year by a combination of low oil, liquids and gas prices. In response to lower prices, producers have made significant capital budget cuts.

And besides low prices and returns, Northeast producers in particular have faced midstream capacity constraints that push down prices to bargain basement levels and make it harder to find economically viable routes to market for new production. Producers responded by laying down rigs and shifting their drilling activity and spending towards their most productive acreage (thereby cutting costs and increasing rig efficiency).

Additionally, those producers that can afford to hold off production (losing cash flow in the short term – something not all have deep enough pockets to do) have used numerous tools and tricks for delaying production while they weather this tough market environment. These include drilling the minimum required to hold on to leases for future development, not completing (i.e. fracking) already drilled wells and choking back big initial production (IP) rates  to restrain output until a pipeline tie-in or better pricing becomes available. Producers typically prefer to defer new production volumes in these ways rather than to shut-in existing wells that are producing, because (as we explained in shut-in economics rarely make sense long term.

The gas production picture has varied across the country with slight growth in the Northeast being offset by declines elsewhere. The Northeast (Marcellus and Utica) continues to drive production growth as it has for the past few years, in particular buoyed by new drilling and record IPs in the dry gas window of the Utica Shale. However, if Northeast producers have delayed completing and tying in wells because of low prices then they could rapidly increase production when conditions improve.  Recent earnings calls suggest that some Northeast producers believe that the last quarter of 2015 (i.e. winter) is the time when they could crank up output from deferred wells in order to meet 2015 targets.

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EIA "energy cookie":

In the first half of 2015, Saudi Arabia exported on average 4.4 million barrels per day (b/d) of crude oil to seven major trading partners in Asia, making up more than half of Saudi Arabia's total crude oil exports over that period. Even as global crude oil prices fell in 2014 and 2015, Saudi Arabia increased production and kept its export levels high, enabling it to maintain its market share in these countries. However, long-term trends within Saudi Arabia's energy sector may reduce its global crude oil market share. --- EIA

Reported yesterday on the blog: year-over-year, June oil imports into the US from Saudi Arabia increased despite American glut in crude oil.

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Mexico Cuts

Bloomberg/Rigzone is reporting:

Mexico plans to spend the least in nine years to explore for oil, relying instead on foreign companies to help reverse a decade-long decline in production.

The Mexican state-owned oil producer, which has lost money 11 quarters in a row, is for the first time in 77 years making room for foreign firms to bid for the right to drill in Mexican territory.

Pemex contends that the formation of 10 joint ventures with private companies at declining fields this year will boost output that has fallen to its lowest levels since at least 1990. Mexico forecasts oil production of 2.25 million barrels a day in 2016 and a price of $50 per barrel, according to the budget proposal.

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Not News -- But Still Pretty Cool

This has already been reported everywhere (see tag), but "cool" to see it in The (London) Independent: North Dakota becomes first US state to legalise (sic) use of armed drones by police.

Armed drones could be used by police in the US state of North Dakota after local lawmakers legalised their use.

While they will be limited to “less than lethal” weapons, tear gas, tasers, rubber bullets and pepper spray could all be used in theory by the remote controlled flying machines.

In a classic case of unintended consequences, the original sponsor, Republican state representative Rick Becker said he was unhappy with the way legislation turned out. 

The Brits are the most "concrete-thinkers" in the world when it comes to names: it's not drones, but "remote controlled flying machines. And "armed'? Tasers?