Denver-based DCP Midstream will construct a 200 MMcf/d sour natural gas processing plant known as Zia II in Lea County in New Mexico with associated gathering system expansions to service producers in southeast New Mexico and West Texas. The project includes front-end treating for sour gas, two acid gas injection wells, a 50-mile, 20-inch high-pressure trunk line in New Mexico, and high-pressure pipelines and compression in west Texas.
Greg Smith, president of DCP Midstream’s Permian Basin and North business units, said the company has invested more than $1.7 billion in the last three years in the Permian Basin.
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Denver-based Lario Oil and Gas said a $600 million credit facility it has negotiated with joint lead arrangers Wells Fargo and J.P. Morgan gives it flexibility as it expands in the Permian Basin and other areas where hydraulic fracturing has created oil booms. The Associated Press said Bank of America, U.S. Bank, and Regions Bank are participating in the financing syndicate.
Lario also is expanding in Kansas, Oklahoma, and North Dakota.
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Pioneer Natural Resources is expanding its fleet of drilling rigs in northern Spraberry to 16 from five this quarter, according to Bloomberg, after striking reservoirs so rich that some wells are expected to pump as many as one million barrels of crude during their lifespans.
As Bloomberg reported, “Pioneer is tripling drilling in shale fields as international energy explorers five times its size recoil from losses on the U.S. oil renaissance.” Pioneer’s wildcatting bucks the trend among bigger explorers, such as Royal Dutch Shell, who are writing down U.S. shale assets and shrinking their footprints after drilling money-losing wells.
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Groundbreaking is expected this spring on a second major rail terminal near Sweetwater in Nolan County. The 385-acre Eskota Road Rail Terminal is being developed by USA Rail Terminals. The terminal, which will serve the oil and gas industry in the Cline Shale, Wolfcamp, and eastern shelf of the Permian Basin, reportedly will be the only rail terminal in West Texas serving both major railroads, BNSF and Union Pacific. Phase I will include five miles of new track. Jim Donnan of USA Rail Terminals told the Abilene Reporter-News that the terminal will have capacity to handle trains of more than 100 rail cars with total available storage for more than 1,200 rail cars. The first trains will be accepted within eight months after groundbreaking. Last year BNSF said it is expanding its Orient Yard in Sweetwater.
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Houston-based Tucker Energy Services started construction of a $2.8 million facility of 6,000 square feet in Abilene, including a wire line shop and offices. Tucker Energy, a multinational firm operating in North, Central and South America, offers services to the oil and gas industry that also include cementing, perforating, coiled tubing, logging, and hydraulic fracturing. Tucker will employ 11 people in Abilene in Phase I of operation. The Abilene Reporter-News said if Tucker’s business expands, the company will go into Phase II, create an Abilene superbase that would include fracking services and a sand and chemical warehouse, and add 132 jobs. By the end of the second phase, Tucker would have invested $51.6 million, the newspaper said.
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Midland-based Diamondback Energy acquired a 43.8 percent working interest in 6,450 acres in Martin County in West Texas from an undisclosed seller. The Odessa American said Diamondback paid $174 million for the assets that were producing a net 1,600 boe/d in November 2013 from a net 63 vertical wells. Diamondback officials estimate horizontal wells could produce much more, projecting net reserves of nearly 4.2 million barrels of oil equivalent. Diamondback identified 42 potential horizontal drilling locations based on spacing of 160 acres per well and 112 potential horizontal drilling locations based on 120-acre spacing.
Diamondback later added another 1,858 acres in Martin County. The independent oil and gas company is purchasing the additional acreage for $114 million with a 22.8 percent working interest in the assets.
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NTE Energy of St. Augustine, Fla., plans to build and operate a $200 million power plant in Nolan County fueled by natural gas. The Sweetwater Reporter said the Pecan Creek Energy Center, which will be constructed 18 miles south of Sweetwater, will generate electrical power for 200,000 homes. “NTE Energy looks forward to working with the Nolan County community in developing one of the cleanest, most efficient, and most reliable electricity sources,” Seth Shortlidge, president, said. Construction will start in 2014 fourth quarter, and the 200-to-300 MW plant is expected to begin operation in 2016 second quarter.
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The latest oil and gas lease sale by the U.S. Bureau of Land Management netted more than $31 million. The federal agency said the proceeds came from the sale of 76 leases in Texas, New Mexico, Oklahoma, and Kansas. New Mexico had the most leases sold—at 22—covering nearly 7,000 acres. The state’s share from the sale is more than $13.8 million. Federal officials told the Associated Press that in the past 10 years New Mexico has received $4.3 billion from energy production on BLM-managed leases—all to benefit public education.
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Houston Pipe Line, a unit of Energy Transfer Partners, received approval from the U.S. Energy Regulatory Commission to build a 23-mile extension of its Edinburgh lateral to export 140 MMcfd of natural gas to northern Mexico starting in 2014 fourth quarter. The Oil and Gas Journal said the 24-inch OD pipeline will extend under the Rio Grande River between Hidalgo County and Reynosa, Mexico, to supply industrial users and power plants. The Journal said the river crossing will require a 1,306-ft. horizontal directional drill at an alignment depth 25 ft. below the Rio Grande and connect to Pemex Pipeline S de RL de CV in Mexico. Gas supplies will primarily be Texas-sourced, but non-Texas gas will also be eligible for shipment.
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Thanks to Texas’ abundant supplies of natural gas, manufacturers are expected to make new investments of $50 million to $75 million in the state in the next 5 to 10 years, according to Richard (Tony) Bennett, president of the Texas Association of Manufacturers. At a meeting of the San Antonio Manufacturers Association, Bennett told the San Antonio Express News, “The shale gas revolution in Texas is incredible.” The petroleum liquids that energy companies are pumping also add to the state’s manufacturing allure, the Express News said.
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Emissions from tanks at oil and gas sites in Texas are “lower than what everyone estimated,” according to Erin Selvera of the air permits division of the Texas Commission on Environmental Quality. Selvera said at a meeting of the Texas Independent Producers and Royalty Owners Association in Fort Worth that flyovers authorized by TCEQ in 2013 recorded visible emissions from about five percent of the tanks observed. “They looked at more than 16,000 tanks in 23 counties in the Permian Basin and Eagle Ford,” Selvera told Platts, a division of McGraw Hill Financial. Using an infrared camera mounted on a helicopter, TCEQ found that about 800 tanks had “some type of visible emissions.”
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FROM THE RAILROAD
COMMISSION OF TEXAS
[issued 27 March 2014]
The Texas average rig count as of March 21, 2014, was 854, representing about 49 percent of all active land rigs in the United States. In the last 12 months, total Texas reported production was 724 million barrels of oil and 7.8 trillion cubic feet of natural gas.
The commission’s estimated final production for January 2014 is 69,927,674 barrels of crude oil and 566,491,596 Mcf (thousand cubic feet) of gas well gas.
The commission derives final production numbers by multiplying the preliminary January 2014 production totals of 59,767,243 barrels of crude oil and 467,981,492 Mcf of gas well gas by a production adjustment factor of 1.1700 for crude oil and 1.2105 for gas well gas. (These production totals do not include casinghead gas or condensate.)
Texas natural gas storage reported to the commission for February 2014 was 175,146, 849 Mcf compared to 316,329,677 Mcf in February 2013. The March 2014 gas storage estimate is 147,019,152 Mcf.
The RRC Oil and Gas Division set initial April 2014 natural gas production allowables for prorated fields in the state to meet market demand of 7,979,774 Mcf (thousand cubic feet). In setting the initial April 2014 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 April 2014 is reported.
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FROM THE U.S. ENERGY
[issued 11 March 2014]
Temperatures east of the Rocky Mountains were significantly colder this winter (October 2013 to February 2014) compared with the same period last winter and the average for the past 10 years, straining distribution networks and putting upward pressure on consumption and prices of fuels used for space heating. U.S. average heating degree days were 13 percent higher than last winter (indicating colder weather) and 10 percent above the October to February 10-year average. The Northeast was 13 percent colder than last winter; the Midwest and South both 19 percent colder; the West was five percent warmer.
The cold weather this winter had the greatest effect on propane prices, particularly for consumers in the Midwest. Cold temperatures tightened supplies that were already low heading into the winter heating season. Residential propane prices in the Midwest rose from an average of $2.08 per gallon Dec. 2, 2013, to $4.20/gal. Jan. 27, 2014; prices since fell back to $2.78/gal. March 3, 2014. EIA expects propane prices in the Midwest to average $2.62/gal. over the winter (51 percent higher than last winter) while those in the Northeast will average $3.47/gal. (15 percent higher than last winter).
Cold temperatures continued to tighten heating oil supplies and helped drive up retail prices. Since the beginning of the year, distillate inventories in the Northeast (Petroleum Administration for Defense Districts 1A and 1B) have fallen by almost 6.9 million barrels to reach 18.3 million barrels Feb. 28, 2014, 6.4 million barrels below inventory levels for the same week in 2013.
Weekly U.S. residential heating oil prices increased by $0.20/gal. during January 2014 and averaged near $4.24/gal. since the beginning of February. Despite the recent increases, EIA expects that U.S. heating oil prices will average $3.83/gal. this winter, $0.04/gal. (one percent) lower than during last year’s winter heating season, mainly because of lower crude oil prices.
The North Sea Brent crude oil spot price in February averaged near $110/barrel for eight consecutive months, while West Texas Intermediate (WTI) crude oil prices increased by $6/bbl from the previous month to reach $101/bbl. Continued high refinery runs helped reduce inventories at the Cushing, Okla., storage hub to 32 million barrels, the lowest level since February 2012, and helped strengthen WTI prices.
The discount of WTI crude oil to Brent crude oil, which averaged more than $13/bbl from November 2013 through January 2014, fell to $8/bbl in February. EIA expects the WTI discount to average $10/bbl in 2014 and $11/bbl in 2015.
Cold weather also contributed to continuing large withdrawals of natural gas from storage and a surge in natural gas spot prices, which hit record levels in several markets during periods of extreme cold. Natural gas working inventories Feb. 28, 2014, totaled 1.20 trillion cubic feet (Tcf), 0.91 Tcf (43 percent) below the level at the same time a year ago and 0.76 Tcf (39 percent) below the five-year average (2009-13). Henry Hub natural gas spot prices were volatile over the past two months, increasing from $3.95 per million British thermal units (MMBtu) Jan. 10, 2014, to a high of $8.15/MMBtu Feb. 10, 2014, before falling back to $4.61/MMBtu Feb. 27, 2014, and then bouncing back up to $7.98/MMBtu March 4, 2014.
EIA expects that the Henry Hub natural gas spot price, which averaged $3.73/MMBtu in 2013, will average $4.44/MMBtu in 2014, an increase of $0.28/MMBtu from the 2014 projection last month. Residential natural gas prices are expected to average $10.05 per thousand cubic feet (Mcf) this winter, an increase of $0.30/Mcf (three percent) from last winter.
—compiled by Garner Roberts