Thursday, October 22, 2015

Natural gas fill rate (dynamic link): 81. In the East Region, stocks were 12 Bcf below the 5-year average following net injections of 49 Bcf.

Gasoline demand (dynamic link): slight decrease; 9.068, 4-week average; compare to 8.896, 4-week average, one year ago: 172,000 bopd delta.

Weather forecast in north Texas: heavy rain starts tonight and will last through Sunday. Flash flood warnings are likely to begin tonight and could last through Sunday. Three to six inches of rain is pretty much a given over the next couple of days, and could come in at seven to ten inches. Weatherspark shows rain starting now and getting really heavy by 6:00 p.m. tonight. I just stepped outside to check my personal weather station: the rock is dry and not moving. No rain and no wind.

Active rigs:

	10/22/2015	10/22/2014	10/22/2013	10/22/2012	10/22/2011
Active Rigs	68	192	182	185	195

RBN Energy: autumn borrowing base redeterminations for E & P companies subdued so far.

Although many industry observers predicted draconian cuts to the credit lines of North American E&Ps during the fall borrowing base redeterminations by their lenders, the average reduction for 17 companies disclosing the results to date is just 4%. Today we describe how these results may indicate that significantly lower industry costs and less dramatic reductions in long-term commodity price forecasts could be partially offsetting the negative factors used to determine borrowing capacity under secured and unsecured credit lines.

Secured loans provided by banks to exploration and production (E&P) companies use the value of the oil and gas reserves that an E&P owns as security or collateral. Banks typically determine “base” borrowing limits for these loans that are linked to the value of the collateral hydrocarbon reserves. These loans are important to E&P companies, particularly the smaller ones, because they allow them to borrow money more cheaply (i.e. at lower interest rates) and in larger amounts than they might be able to otherwise. Banks revisit or “redetermine” the terms of the loans twice a year, once in the spring and once in the fall. These are typically not very newsworthy events except when oil and gas prices have declined sharply since the value of the collateral declines as well.  There has been a lot of trepidation over the fall redetermination this year (2015) since, by all accounts, the spring redeterminations resulted in minimal changes to E&P borrowing bases despite the collapse in oil prices that started over a year ago.   Reductions in borrowing bases strap E&P companies for capital needed to reinvest in developing oil and gas reserves. Less capital available results in fewer wells drilled, lower cash flow and presumably lower production.

That sounds like good news. In fact, it's bad news for the industry: it suggests that we may not have seen the low in oil prices yet. On the other hand ...