MARCELLUS/UTICA REGION: ODNR issues 2 well permits in Columbiana County; Natural gas industry has generated $45.8 million in taxes in eastern Ohio; OTHER U.S. REGIONS: Negative Permian gas prices, but is the worst yet to come?; NATIONAL: Next US shale wave will need fewer heads, different skills; INTERNATIONAL: What does the New Silk Road mean for oil and gas?; Simulations aid training and improve safety in drilling operations; The new oil Darwinism.
MARCELLUS/UTICA REGION
ODNR issues 2 well permits in Columbiana County
Youngstown (OH) Business Journal
The Ohio Department of Natural Resources last week awarded five new permits for horizontal wells in the Utica shale – two of which are targeted for Columbiana County. ODNR approved permits March 18 for Houston-based Hilcorp Energy Co. to drill two horizontal wells at the Auer well pad in Elk Run Township, according to records. There were no new permits issued for Mahoning and Trumbull counties in the northern tier of the Utica shale. EAP Ohio LLC secured three permits to drill new wells in Jefferson County, in the southeastern tier of the play, ODNR reported. As of March 23, the state had issued 3,042 permits across Ohio’s Utica shale. Of these, 2,554 wells have been drilled and 2,167 of these wells are in production. ODNR reported there were 15 rigs operating in the Utica shale during the week ended March 23. [MDN: Who is EAP Ohio? That’s Encino Acquisition Partners, or Encino Energy, which bought out all of Chesapeake Energy’s Ohio Utica assets. So the name change on permit applications has finally happened.]
Natural gas industry has generated $45.8 million in taxes in eastern Ohio
New Philadelphia (OH) Times-Reporter
Over the past nine years, the oil and gas industry has brought jobs, better roads and increased tax revenues to counties and school districts throughout eastern Ohio. That was the message that Mike Chadsey, director of public relations for the Ohio Oil and Gas Association, brought to members of the New Philadelphia Rotary on Tuesday. After he made his presentation, he stopped at The Times-Reporter office to discuss issues related to the industry. “I am grateful to have had the opportunity to speak to the Rotary Club today,” he said. “My message was, as Tuscarawas County, you are not on the outside looking in, regarding shale development. There is much going on locally that is positive and directly connected to the oil and gas industry.” Between 2010 and 2015, the industry has paid $45.8 million in taxes in six Ohio counties — Belmont, Carroll, Guernsey, Harrison, Monroe and Noble, he said. During that time, it paid $14 million in property taxes in Carroll County and $11 million in Harrison County. In addition, the industry has spent $302.6 million to improve 639 miles of highway in eastern Ohio. That includes $44.7 million in Carroll County for 99.33 miles of roads and $31.4 million in Harrison County for 54.75 miles of roads. Energy companies have invested $8.1 billion on five pipeline projects. Kinder Morgan spent $500 million to build the 215-mile-long Utopia Pipeline and Energy Transfer spent $4.3 billion to build the 570-mile-long Rover Pipeline. Both pipelines run through Harrison, Carroll and Tuscarawas counties. Tax dollars generated by the industry have benefited local school districts. [MDN: The article continues on to quote more states of how the industry has invested in eastern Ohio. And these numbers don’t account for the billions spent in leasing and royalty income that flows to landowners!]
OTHER U.S. REGIONS
Negative Permian gas prices, but is the worst yet to come?
RBN Energy
Permian natural gas prices are having a rough spring. After a volatile winter that saw two periods of negative-priced trades followed by a period of relatively strong prices, values at the Permian’s major trading hubs hit the skids earlier this week just as Spring Break set in for most in the Lone Star state. Once again, pipeline maintenance and burgeoning production appear to be the main culprits, but this upheaval feels different, in our view. Clearly, the price crash has reached a new level of drama, with day-ahead spot prices at West Texas’s Waha hub now settling below zero — some days by more than $0.50/MMBtu. Gas production has raced higher too, now within striking distance of 10 Bcf/d, on the coattails of continued oil pipeline capacity expansions, but new gas pipeline takeaway capacity is an estimated six months away. What becomes of Permian gas prices in the meantime, and how much worse could already-negative prices get? Today, we discuss the drivers behind the latest price deterioration and assess what’s ahead for the Permian natural gas markets. [MDN: It’s hard to sell M-U gas into a market where the competition (from the Permian) is paying folks to take their gas! How much longer, and how much lower, will Permian gas prices go? That’s the topic of this enlightening RBN blog post.]
NATIONAL
Next US shale wave will need fewer heads, different skills
Rigzone/Gaurav Sharma
U.S. shale oil and gas explorers are once again in the limelight, following the International Energy Agency’s forecast that a “second” shale revolution was on the horizon. The next wave would drive U.S. oil output to 19.6 million barrels per day (bpd) by 2024 up from 15.5 million bpd in 2018, noted the agency that advises some of the biggest, predominantly Western governments on energy related issues. The IEA also forecast that U.S. gross crude exports are “expected to double” over the period making it a net energy exporter, underpinned by efforts of shale explorers. The upbeat assessment, published at the start of the recently concluded IHS Markit CERAWeek 2019 conference, an energy industry jamboree held every March in Houston, Texas, triggered ecstatic dialogues about both the viability and future direction of the industry. Like a broken, albeit on the money record, several commentators at the conference expressed the opinion that should the oil market take a turn for the worse, many shale players with viable acreages could survive at $35-40 per barrel prices. For hidden deep in the IEA’s take on the U.S. shale industry is an accolade that’s not alluded to enough when such quips are made – how process optimization and technological efficiencies are keeping players competitive in a cutthroat industry. Following the oil price slump of 2015-16, visits to fracking sites and onstream wells from the Denver-Julesburg basin and to the Permian would illustrate how things are changing. Seismic studies are now heading beyond 4D, solar panels power personnel quarters, eight wells are often seen producing more oil and gas volumes than 16 previously did, processes and assets are more productive, and unmanned remotely managed rigs, hitherto largely seen offshore, are becoming visible onshore. What’s more drilling times are being reduced and in many cases halved, driven by data obtained from smart sensors. Regina Mayor, Global Sector Head, Energy and Natural Resources at KPMG, says the “second wave” is being powered by a different kind of ingenuity and more agile capital planning. “You cannot escape how exploration and production companies in the shale patch are learning to do more with technology. Agile capital planning means these companies do not have to spend as much, as well as spend differently, and that applies to their hiring patterns and strategies.” [MDN: Fewer people, with new and different skills, are coming to the shale patch. Technology continues to revolutionize shale. Big Data is on the way. Common themes we keep reading about over and over.]
INTERNATIONAL
What does the New Silk Road mean for oil and gas?
Journal of Petroleum Technology
China is in the midst of an historic push to tie together at least 65 countries on three continents through new trade and infrastructure projects. Known as the Belt and Road Initiative, the plan encompasses more than 60% of the world’s population and nearly three quarters of its energy reserves. The scope of this ambitious effort, a 21st century version of the famous 7th century silk road that connected China to Europe, was chosen as the overarching theme of the 2019 International Petroleum, Technology Conference (IPTC) being hosted in Beijing this week. The gathering has attracted more than 2,400 professionals from 50 upstream companies to share new technical discoveries and address some of the industry’s most pressing issues. Exactly what the Belt and Road Initiative means for the future of energy supply remains somewhat undefined, but executives from China National Petroleum Corporation (CNPC) and Saudi Aramco—the conference’s two major sponsors and hosts—shed light on how they expect the arrangement to unfold in the years to come during IPTC’s opening session. Amid the backdrop of the initiative, Wang Yilin, the chairman of CNPC and IPTC’s honorary chairman, said the next decade will prove to be “a very critical period for the energy transformation in China.” There are two sides to the coming change as he sees it. The first is a call for hydrocarbon producers to take part in the development of low-carbon alternatives to oil and gas, while the other will demand that these producers continue to increase supplies of fossil fuels to meet the world’s rising demand. Managing this balance will steer the future of CNPC. Highlighting some key numbers, Wang noted that coal consumption accounts for 60% of his country’s energy needs today and that the goal is to reduce this share of the pie chart to below 45% over the next decade. Curbing the country’s dependency on coal-burning power plants is already under way, and has had one notable result for conference delegates. “We can see blue sky, white clouds, and breathe clean air,” remarked Wang, drawing a contrast between Beijing’s infamous smog problem. He added that his company is proud to proclaim it has “made an enormous contribution” to this welcome development by producing more than 4 billion cubic meters of gas per day, roughly 40% of the domestic supply, which is increasingly being used to fuel the country’s power stations. [MDN: Interesting to see China and the Saudis hopping into bed together. And troubling.]
Simulations aid training and improve safety in drilling operations
Forbes/Mark Venables
High-quality, realistic simulators have been a stable of the gaming community for many years, but they are rapidly becoming a vital tool for the industry as well. The oil and gas sector is one area that this technology is making a significant impact, particularly when it comes to delivering faithful training environments. Over the past seven years, Fagskolen i Hordaland, which is in Bergen city center, has trained hundreds of students and oil and gas industry professionals in drilling and well control operations at its bespoke simulator facility. The multi-million dollar, 180m² facility is one of Norway’s most advanced simulation centers for drilling and has been developed in close consultation with the drilling industry to ensure it meets the sector’s skills and competency demands now and into the future. As well as a large Drilling Systems’ DrillSIM-6000 simulator suite, the center features two associated rooms where up to 25 students can observe and analyze simulation scenario via immersive displays. According to Clive Battisby, chief operating officer at Drilling Systems who supplied the simulator, cost reduction is the biggest driver in the current market. “It’s always hard to directly link dollar performance with training and ultimately as a business that’s what drives a decision to invest,” he says. “When a modern drilling rig costs millions of dollars the decision is often much simpler. We see a growing gap in the skills base. Many skilled people have left the industry and simulation training, combined with an automated competency testing system, is a very cost-effective way to close this gap.” There is a huge variety of manufacturers of drilling rigs and control systems, all of which are different, for a customer who has a diverse fleet it’s much harder to standardize the training and offer this at a cost-effective price point. Currently, there is no type rating system for the drilling crew so there is a lot of wasted training time getting people up to speed. On-the-rig, location-based training allows for a cost-effective training platform. [MDN: Cool technology. Click to look at a picture of the simulator. Looks to us like maybe this is for offshore drilling platforms, but the concept is the same. Watch for more simulators to be used in training shale personnel too.]
The new oil Darwinism
Council on Foreign Relations
It’s a geopolitical jungle out there in the oil world right now and only the fittest will survive. The new oil Darwinism is replacing the older thesis that all producers can succeed over time because the current lack of adequate capital investment is going to create an oil supply gap in the future that will once again boost oil prices (the so-called supply hole thesis). There are still some active looming supply crunch proponents who are talking down the potential of U.S. unconventional oil and gas, but recent announcements by ExxonMobil and Chevron about robust plans for U.S. onshore drilling appear to dispel the notion that a debt-ridden U.S. industry is on the verge of potential failure. Projected Permian oil production for the two American oil majors alone is 1.9 million barrels a day by 2024, on top of already robust output from U.S. independent oil companies. Citi estimates that U.S. oil production increases could fill most of the expected increase in oil demand for the next five years. That could leave OPEC in a bind, Citi suggests, since the producer group could lose up to three million b/d of market share to U.S. producers if it chooses to cut production to defend $65 oil prices, according to Citi estimates. [MDN: A fascinating think piece about how the world of Big Oil is rapidly changing, thanks to shale. It is yet more evidence that OPEC is beginning to crumble.]
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