The Weekly US Oil & Gas Update: 10 December 2013

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

The EIA forecasts lower oil prices for 2014, but higher prices for natural gas

According to the US Energy Information Administration, West Texas Intermediate (WTI) crude will drop from its 2013 average of $97.74 per barrel to $95 per barrel next year. Brent, the international price benchmark, will fall from its 2013 average of $108.01 to $103 next year. This will reduce the WTI-to-Brent discount, which reached an average of $20 per barrel last February, to $8 in 2014. The discount had been driving much of the crude-by-rail activity, as cheaper WTI-priced crude replaced Brent crude at coastal refineries. Expect the price of natural gas to rise from 2013's $3.68 average to $3.84 in 2014, according to the EIA. Article here

Shell trying again in Arctic's Chukchi Sea in 2014

The 2012 Arctic drilling effort went poorly, with Shell's drillship Kulluk running aground after abandoning efforts early with little to show. Shell will try again next year in July, this time utilizing the Noble Discoverer as the primry drillship, with Transocean's Polar Pioneer kept in reserve in the event of an accident, at a cost of $600,000 per day. Shell understands the challenge of drilling in the Arctic,and says so in its plan posted by the Bureau of Ocean Energy Management, stating "The planned 2014 operations may encounter many challenges . . . Vast distances, harsh weather and sea conditions, possible volcanic and earthquake activity, and sparse shore-based infrastructure represent some of the considerable obstacles that must be planned for and accommodated." Article here

Unconventional Oil & Gas News

Canadian analysts expect oil sands crude to make its way to the US whether Keystone XL pipeline built or not

At a recent presentation, analysts from Canada's National Energy Board predicted that Canadian crude production, largely driven by Alberta's oil sands, will continue increase, up to 139% by 2035 to 5.5 million barrels per day. The analysts believe this Canadian crude will make it to the US in one manner or another, driven by market demand. If Keystone is not built, that method will likely be rail. According to team leader Abra Bhargava, "We strongly believe the markets can function, and transportation will be found." Article here

Is California's Monterey Shale overhyped? Probably

Anyone following the debate over the Monterey Shale has seen the numbers; 15.4 billion barrels of oil technically recoverable, according to a 2011 EIA report, making it larger than either the Bakken or the Eagle Ford. However, the complex geology has frustrated everyone who has tried to develop this resource, which underscores the distinction between technically recoverable and commercially recoverable. Michael Schaal, director of EIA's Office of Petroleum, Natural Gas and Biofuels Analysis has noted that commercial viability has eluded everyone who has attempted development of the Monterey. "We don't see in any of our projections that there's a great future for the Monterey Shale," Schaal said recently. Oxy Petroleum, the plays largest acreage holder, still holds out hope however. "We're just getting started, really," said Stephen Harris, who has consulted with Oxy. Harris and others believe that technology could still unlock the potential of the Monterey some time in the near future, at commercially-viable costs. "We all agree that different technologies will be needed in the Monterey Shale," said Kevin Hopkins, editor of a recent USC report touting the economic benefits of the Monterey. Article here

New Mexico's San Juan Basin seeing oil activity

The San Juan has traditionally been known for its prolific natural gas production from thousands of CBM wells, but recent activity shows promise for oil production. Encana plans to spend $250 million to $450 million drilling for oil in the San Juan in 2014, based on successes from recent exploratory wells. Other companies with oil exploration activities include WPX Energy and Bill Barrett Corp. Article here

Environment and Safety News

North Dakota Department of Health introduces spill reporting website

The site will provide complete transparency for any spills by the oil & gas industry in the state, according to Dave Glatt, chief of the department's environmental health section. "All of the information we get on the forms that are filed with the Department of Health will be on the website." The site will be comprehensive, with an identification of each spill, its location, the county, the size of the spill and reports of spill amounts recovered, if any, according to Glatt. It will also include a section with updates on whether the spill has been contained or not, and progress reports of the cleanup efforts. Data will include not only current spills, but also spills from the most recent 12 months. Article here

Mergers and Acquisitions News

Is Bakken-focused Oasis Petroleum an acquisition target?

There is much speculation that Oasis is a target for acquisition by one of he majors, or larger independents. The company has a strong acreage position in the Bakken, which is its only significant asset, and the only way to get into the play anymore is to buy someone. Add to that the fact that Oasis' recent bond offering has a clause with a change-of-control repurchase, not typically seen in bond offerings of this kind. Certainly not definitive, but perhaps an indication for market likelihoods. Article here