Ripples from the drilling boom keep extending outward.
The second phase of construction on a crude oil rail loading facility in Wink, Texas, by Houston-based Genesis Energy is nearing completion on the Texas-New Mexico Railway, which connects to Union Pacific in Monahans. The facility, an origin terminal, will give the company the ability to load 140 cars.
“With increasing production in the Permian Basin and lack of pipeline capacity, there was a need for alternative options to move crude,” Jennifer Stewart of Genesis told the Midland Reporter Telegram. “We are able to provide our customers with the flexibility and options they need to transport crude.”
Stewart said Genesis expects demand to move crude by rail will increase. “Crude by rail is a fast growing market,” she said. And the U.S. Energy Information Administration agrees. An EIA analyst said, “Truck and rail provide an alternative transportation method when pipelines are operating at capacity or when a production area lacks pipeline infrastructure.”
BNSF Railroad conducted ground-breaking ceremonies Oct. 22 for its 75-acre logistics center in Sweetwater, Texas. It is being redeveloped into what is being called “a world class home for energy industry shippers” so that hydraulic fracturing sand, pipe, clay, barite, and other drilling materials can be shipped into the Permian Basin and Cline Shale. Crude oil may also be shipped from the new rail facility.
Midland-based Advantage Pipeline began pumping oil in September on 36 miles of pipeline from Ward County to Crane in the Delaware Basin, where it meets the Longhorn Pipeline and travels to the Texas Gulf Coast. It’s the first phase of the 70-mile Pecos River Pipeline. The second phase is expected to come online by the end of 2013 to move oil from Reeves, Culberson, Pecos, and Ward counties. The Odessa American said the finished infrastructure will carry about 150,000 barrels of oil per day. Blueknight Energy Partners, a midstream company based in Oklahoma City, owns 30 percent and operates the pipeline under an agreement with Advantage.
An analyst for Wood MacKenzie said two horizontal plays—the Bone Spring and the Wolfcamp—will account for 38 percent of production in the Permian Basin within five years. “The two leading horizontal plays will drive development,” Scott Pearson said. “Both plays still have room for development.”
The Wood MacKenzie report said the Permian Basin is a mature basin, but these two plays expected to drive significant production growth are in their infancy and will produce more than a million barrels of oil equivalent per day by 2018. Pearson said operators are still learning geology in the two plays.
Upstream analyst Benjamin Shattuck said operators have spent only 11 percent of the capital expenditures required to fully develop the Bone Spring and only 3.5 percent of the required capital to develop the Wolfcamp. Wood MacKenzie said Concho Resources, Devon, Anadarko, and Cimarex are expected to dominate production, but Wood MacKenzie expects Apache, Chevron, Occidental Petroleum, BHP Billiton, and ConocoPhillips to increase activity and lead production growth over the next five years.
Lehigh Valley, Pa.-based Air Products said it will build a liquid nitrogen production facility in the Midland-Odessa area. The company said the plant will produce 250 tons per day and come online in 2015. No specific location for the plant was announced, but Guy Andrews of the Odessa Industrial Development Corp. told the Odessa American that Air Products is talking with OIDC about purchasing five acres of land in the South Industrial Park.
Oklahoma City-based Devon Energy and Dallas-based Crosstex Energy have agreed to combine substantially all of Devon’s U.S. midstream assets with Crosstex assets to form a new, still-unnamed midstream business based in Dallas. Both companies have assets in the Permian Basin.
A spokesman said, “The combination of Devon’s and Crosstex’s extensive midstream systems—including gathering and transportation pipelines and processing, fractionation, and logistics assets—provides the new company with diversification and scale along with an enhanced liquids-oriented growth profile.” Each also has assets in the Barnett Shale and Eagle Ford Shale in Texas and other areas.
The new company, with Barry Davis of Crosstex as CEO, will have 7,300 miles of gathering lines and transportation pipelines, 13 processing plants, six fractionation plants, and other storage and transportation facilities.
Victor G. Carrillo, a former commissioner of the Texas Railroad Commission, county judge of Taylor County, and member of the Abilene City Council, has been named chairman of the West Texas Energy Consortium (formerly Cline Shale Alliance). He is president and COO of Zion Oil & Gas, a Dallas-based company exploring exclusively in Israel.
Magellan Midstream Partners will build a new origin at Barnhart in Irion County to accept crude oil shipments on its Longhorn Pipeline. The new origin point—about 75 miles east of the pipeline’s origin in Crane—will cost $25 million, according to the Oil and Gas Journal, and will begin receiving crude in early 2015. Magellan also plans a $55 million expansion of capacity of Longhorn to be ready by mid-2014.
The U.S. Energy Information Administration released the first edition of a new monthly Drilling Productivity Report to provide region-specific insights into oil and natural gas drilling rig efficiency, new well productivity, existing well decline rates, and overall oil and natural gas production trends.
The EIA has been developing new approaches to assess the productivity of drilling operations. The DPR, which initially will cover six regions, including the Permian, also will inform EIA’s own short-term production outlook. In 2011-12, these six regions accounted for 90 percent of domestic oil production growth and virtually all domestic natural gas production growth. New technology used in drilling for and producing natural gas and oil—mostly since 2007—made obsolete traditional indicators of future production such as simple counts of oil-directed and gas-directed drilling rigs in use.
“The metrics presented in the Drilling Productivity Report are intended to be more informative than traditional indicators of future oil and gas production,” EIA administrator Adam Sieminski said. “The report provides a new approach that takes into account changes in the application of technologies that have led to rapid increases in U.S. oil and gas production.”
FROM THE RAILROAD COMMISSION OF TEXAS
[issued 29 October 2013]
The Texas average rig count as of Oct. 18, 2013, was 812, representing about 49 percent of all active land rigs in the United States. In the last 12 months, total Texas reported production was 583 million barrels of oil and 7.4 trillion cubic feet of natural gas.
The commission’s estimated final production for August 2013 is 67,254,590 barrels of crude oil and 609,202,589 Mcf (thousand cubic feet) of gas well gas.
The RRC derives final production numbers by multiplying the preliminary August 2013 production totals of 55,683,549 barrels of crude oil and 489,949,002 Mcf of gas well gas by a production adjustment factor of 1.2078 for crude oil and 1.2434 for gas well gas. (These production totals do not include casinghead gas or condensate.)
Texas natural gas storage reported to the commission for September 2013 was 416,276,765 Mcf compared to 424,289,370 Mcf in September 2012. The October 2013 gas storage estimate is 432,384,362 Mcf.
The RRC Oil and Gas Division set initial November 2013 natural gas production allowables for prorated fields in the state to meet market demand of 7,712,764 Mcf (thousand cubic feet). In setting the initial November 2013 allowables, the commission used historical production figures from previous months and producers’ demand forecasts for the coming month, then adjusted the figures based on well capability. These initial allowables will be adjusted after actual production for November 2013 is reported.
FROM THE U.S. ENERGY INFORMATION ADMINISTRATION
[issued 08 October 2013]
The U.S. Energy Information Administration projects average U.S. household expenditures for natural gas (by 13 percent) and propane (by nine percent) will increase this winter heating season (Oct. 1 through March 31) compared with last winter. Projected U.S. household expenditures are two percent higher for electricity and two percent lower for heating oil this winter. Although EIA expects average expenditures for households that heat with natural gas will be significantly higher than last winter, they are still lower than the previous five-year average.
Brent crude oil spot prices fell from a recent peak of $117 per barrel in early September to $108 per barrel at the end of September as some crude oil production restarted in Libya and concerns over the conflict in Syria moderated. EIA expects the Brent crude oil price to continue to weaken, averaging $107 per barrel during the fourth quarter of 2013 and $102 per barrel in 2014. Projected West Texas Intermediate (WTI) crude oil prices average $101 per barrel during the fourth quarter of 2013 and $96 per barrel during 2014.
The weekly U.S. average regular gasoline retail price fell by 18 cents per gallon during September, ending the month at $3.43 per gallon. EIA’s forecast for the regular gasoline retail price averages $3.34 per gallon in the fourth quarter of 2013. The annual average regular gasoline retail price, which was $3.63 per gallon in 2012, is expected to be $3.52 per gallon in 2013 and $3.40 per gallon in 2014.
Natural gas working inventories ended September at an estimated 3.52 trillion cubic feet (Tcf), 0.17 Tcf below the level at the same time a year ago and 0.04 Tcf above the previous five-year average (2008-12). EIA expects that the Henry Hub natural gas spot price, which averaged $2.75 per million British thermal units (MMBtu) in 2012, will average $3.71 per MMBtu in 2013 and $4.00 per MMBtu in 2014.
Despite a rise in natural gas prices from their 2012 level, stable coal prices and an increase in electricity generation from coal contribute to only modest increases in retail electricity prices. EIA expects residential electricity prices to increase by two percent in 2013 and one percent in 2014.
—compiled by Garner Roberts