Whether we’re three years into the upswing or five or more–depending on where one fixes the starting point–it’s clear that reports from the field just keep saying the same thing: business is good.
Dallas-based Pioneer Natural Resources recently announced record horizontal drilling results in West Texas. Scott D. Sheffield, chairman and CEO, said, “Our first horizontal Wolfcamp D interval well in Andrews County achieved the highest initial production rate (24-hour peak IP of 3,605 boepd with oil content of 74 percent) from any horizontal interval well in the Midland Basin and extended the productivity of the Wolfcamp play approximately 60 miles west of recent successful Wolfcamp drilling activity. This well is also approximately 80 miles north of our industry-best Wolfcamp B interval well (24-hour peak IP of 3,176 boepd with oil content of 83 percent) in Reagan County.”
Exploration by other companies, including Laredo, Apache, Range Resources, and Devon, is increasing as more money is being spent in the Cline. Total rig count is up to 215, according to Baker Hughes. Horizontal rig count was up to 79 in late 2013—more than double the figure at the beginning of 2013. Laredo in 2013 third quarter reported a Glasscock County well with an IP of 1,888 boepd (in three months that record was nearly doubled by the Pioneer results). In the Cline region, according to a recent report from Baker Hughes, leading counties with active rigs (not all in the Cline interval) are Martin (41, up three from previous month), Glasscock (40, up 13 from previous month), Midland (22), Howard (22), Reagan (17), and Irion (16).
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In a three-year growth plan announced in November 2013, Midland-based Concho Resources said it will double its production by 2016 and “strategically position the company as the leading operator in the Permian Basin.” Concho’s capital budget for 2014 is $2.3 billion, which it believes will yield annual production growth of 18-to-22 percent. Concho added, “This budget contemplates operating an average of 37 drilling rigs for 2014, of which 32 will drill horizontally.”
Tim Leach, chairman, CEO, and president, said, “We have significant flexibility in how we choose to execute our business. That flexibility is a direct result of the success across our assets in both Delaware and Midland Basins. The performance of our assets and depth of our inventory are compelling and suggest that we can increase our growth rate… Our 2014 capital budget is intended to lay the groundwork for a multi-year growth plan.” The plan is expected “to deliver annual production of more than 67 MMBoe in 2016.”
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Plains All American Pipeline said it will complete four projects during 2014 and 2015 to expand its Permian Basin pipeline infrastructure to keep pace with rising production volumes. The projects are three large-diameter pipelines that will increase PAA’s takeaway capacity in the Delaware and South Midland Basins and the supporting gathering systems PAA is building in the Avalon, Bone Spring, and South Spraberry plays. PAA said these and other current projects require investments of at least $400 million.
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Texas governor Rick Perry was one of 12 governors to pledge support for the States First Initiative, an effort to support and enhance the states’ role as the primary and appropriate regulators of oil and gas development. In a Dec. 13 letter to U.S. energy policy leaders, they said, “The states’ ability to design effective regulations that reflect state-specific needs is a vital element in the resurgence of our nation’s oil and natural gas industry.” Apropos of field operations, the letter’s text included this: “This critical area is where the states know best how to conduct oversight of exploration and production activities.”
The 12 governors were composed of three Democrats and nine Republicans, including Oklahoma’s Mary Fallin.
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The economic impact in 2012 for 10 counties in the Cline Shale was $14.5 billion—supporting 21,450 full-time jobs with $1 billion in wages and generating $472 million in state revenues and $447 million in local government taxes. Dr. Thomas Tunstall, director of research at the Institute of Economic Development at UT-San Antonio, reported the economic impact in Phase I of his study of the Cline Shale at the first conference of the West Texas Energy Consortium recently in Big Spring.
He said 854 vertical wells and 57 horizontal wells were completed in the Cline Shale in 2012, primarily in Fisher, Glasscock, Howard, Irion, Martin, Mitchell, Nolan, Reagan, Scurry, and Sterling counties. Speaking of the boom, he said, “If it [a boom in the Cline] does [happen], it is likely to happen quickly and without a lot of warning, which is why it is important for communities to prepare now for the eventualities.”
The conference created substantial Twitter traffic, including a tweet from Michael Kelly of the San Angelo Standard Times quoting Santos Gonzales of the Texas Railroad Commission: “Permian Basin estimated to have more resource left than has been extracted in the past 90 years.”
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Denver-based QEP Energy has reached an agreement to acquire oil and gas properties in the Permian Basin for $950 million from Houston-based EnerVest. The properties of 26,519 net acres are located primarily in Martin and Andrews Counties, with current net production of about 6,700 Boe/d (68 percent crude oil) and net proved reserves based on internal estimates of about 47 MMBoe. Estimated net recoverable resources total 300 MMBoe. QEP Energy said there is potential for 200 vertical and 775 horizontal drilling locations.
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Los Angeles-based BreitBurn Energy Partners signed an agreement to acquire oil and natural gas properties in the Permian Basin for about $282 million from CrownRock. The assets include 93 producing wells and more than 300 potential drilling locations, estimated average daily net production of about 2,900 Boe/d (for October, 60 percent oil), and an estimated reserve life index of more than 15 years based on estimated proved reserves of about 16.6 MMBoe.
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Midland-based True Oil secured commitments that total $500 million for equity investment in acquisition and development of Permian Basin oil and natural gas assets. The Oil and Gas Journal said the commitments are from an investor group led by Ares Management of Los Angeles. True Oil was formed recently by Ronald Scott, former president and CEO of Henry Petroleum, Henry Resources, and HPC Energy of Midland.
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Demand for rail cars because of the boom in the oil and natural gas industry has created a backlog of orders for manufacturers. Much of the crude flows through pipelines, but an increasing amount moves by rail. Dallas-based Trinity Industries, one of the largest manufacturers of rail cars, saw 2013 third quarter earnings increase 58 percent on revenue of $1.1 billion, according to the Dallas Morning News. Its revenue is expected to top $4 billion in 2013—more than double that of 2010. The Morning News said Trinity shipped 6,225 rail cars to customers in 2013 third quarter, had orders for an additional 5,610 cars, and has back orders for 40,000 cars.
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The City of Dallas significantly tightened its rules for drilling by the natural gas industry following years of debate. The Texas Tribune said the City Council overhauled an ordinance that now requires a minimum setback of 1,500 feet between new rigs and compressor stations and “protected use” areas such as homes, businesses, and churches. The setback is five times the previous buffer. In nearby Fort Worth, home to 1,700 producing wells, the required setback for new wells is 600 feet—although the Tribune said some homes are closer where drilling started under less strict rules.
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An eight-member delegation from the east African nation of Uganda was in Eddy County in southeastern New Mexico in November 2013 to tour oil and gas facilities. Uganda is preparing to commercialize its industry, according to the Carlsbad Current-Argus, and the country sent engineers, geologists, and environmentalists to learn from experts in the U.S. Bureau of Land Management. The four-day tour, with other stops in Artesia and Hobbs, included visits to a production facility, fracking pond, and drilling rig. The United States is teaming with Uganda in a program funded and managed by the U.S. Department of State that trains personnel and shares energy information, education, and policies.
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The influx of people into the Permian Basin has strained medical services, according to a report in the Odessa American, and the newly-formed Permian Basin Coalition will address the issue. Dr. Todd Mitchell, president of the Health Sciences Center of Texas Tech Univerity, said the area faces a shortage of healthcare providers, including EMS, and has limited clinical sites to train new ones. He said Tech is expanding its Permian Basin medical programs, including a rural health initiative that stations senior medical students in rural communities.
At a meeting of the coalition last month, Ben Shepperd, president of the Permian Basin Petroleum Association, said, “Though we are frustrated with infrastructure right now, I think we would all rather be here trying to solve those problems rather than moving backwards.”
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FROM THE RAILROAD COMMISSION OF TEXAS
[issued 23 December 2013]
The Texas average rig count as of Dec. 13, 2013, was 846, representing about 50 percent of all active land rigs in the United States. In the last 12 months, total Texas reported production was 677 million barrels of oil and 6.3 trillion cubic feet of natural gas.
The commission’s estimated final production for October 2013 is 63,932,725 barrels of crude oil and 569,435,256 Mcf (thousand cubic feet) of gas well gas. The commission derives final production numbers by multiplying the preliminary October 2013 production totals of 54,522,194 barrels of crude oil and 462,917,857 Mcf of gas well gas by a production adjustment factor of 1.1726 for crude oil and 1.2301 for gas well gas. (These production totals do not include casinghead gas or condensate.)
Texas natural gas storage reported to the RRC for November was 436,325,959 Mcf compared to 463,524,469 Mcf in November 2012. The December 2013 gas storage estimate is 391,122, 702 Mcf.
The RRC Oil and Gas Division set initial January 2014 natural gas production allowables for prorated fields in the state to meet market demand of 8,125,899 MCF (thousand cubic feet). In setting the initial January 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 January 2014 is reported.
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FROM THE U.S. ENERGY INFORMATION ADMINISTRATION
[issued 10 December 2013]
After falling by more than 40 cents per gallon from the beginning of September through mid-November 2013, U.S. weekly average regular gasoline retail prices increased by 8 cents per gallon to reach $3.27 per gallon Dec. 2, 2013, due in part to unplanned refinery maintenance and higher crude oil prices. The annual average regular gasoline retail price, which was $3.63 per gallon in 2012, is expected to average $3.50 per gallon in 2013 and $3.43 per gallon in 2014.
The North Sea Brent crude oil spot price averaged near $110 per barrel for the fifth consecutive month in November. EIA expects the Brent crude oil price to average $108 per barrel in December and decline gradually to $104 per barrel in 2014. Projected West Texas Intermediate (WTI) crude oil prices will average $95 per barrel during 2014.
The discount of the WTI crude oil spot price to Brent, which averaged more than $20 per barrel in February 2013 and fell below $4 per barrel in July, recovered to an average of $9 per barrel in October and $14 per barrel in November. The spot discount of Light Louisiana Sweet (LLS), a key Gulf Coast light sweet crude oil, to Brent increased from an average of $3 per barrel in September to almost $11 per barrel in November. The opening of a large LLS discount to Brent and the increasing convergence of LLS and WTI prices result from pipeline expansions and reversals that have reduced bottlenecks in the Midcontinent, continuing growth in domestic light oil production, and a seasonal decline in crude oil runs at U.S. Gulf Coast refineries. Brent crude oil prices continue to be supported by ongoing supply outages in Libya and tightness in global light crude oil markets. EIA expects the WTI discount to Brent to average $12 per barrel during the fourth quarter of 2013 and $9 per barrel in 2014.
Estimated U.S. crude oil production averaged 8.0 million barrels per day (bbl/d) in November, the highest monthly level since November 1988. EIA expects U.S. crude oil production will average 7.5 million bbl/d in 2013 and 8.5 million bbl/d in 2014.
Natural gas working inventories ended November at an estimated 3.61 trillion cubic feet (Tcf)—0.19 Tcf below the level at the same time a year ago and 0.11 Tcf below 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 $3.69 per MMBtu in 2013 and $3.78 per MMBtu in 2014.
—compiled by Garner Roberts