The Weekly US Oil & Gas Update: 25 November 2013

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

Pipelines and processing capacity lagging upstream development

Midstream operators aren't building fast enough to keep up with the rapidly-expanding domestic E&P industry, according to a new study by Deloitte LLP. The study asserts that the midstream sector will need to invest $200 billion by 2035 to meet the trasportation, processing and storage demands of increased domestic oil and gas production. "We think this midstream growth has a way to run, given the need for capacity to get oil and gas to market," says John England, Deloitte's vice chairman and oil and gas leader. The midstream sector hasn't been exactly standing still, with capital expenditures over the last six years doubling those of the previous 14 years. The shortfall of capacity is most evident in the Eagle Ford and Bakken shale plays, where about a third of the natural gas production associated with the more valuable oil production is flared, or burned off, due to lack of takeaway capacity. Article here

Bakken's radioactive waste now has a home in Montana

Filters and tank sludge from North Dakota's Bakken formation often contain naturally occurring radioactive material (NORM), a result from concentrating the radioactive elements coming from hydrocarbons into filters, tank bottoms or flow lines. North Dakota's upper limit to dispose of these NORM items in-state is 5 picocuries, a relatively low number. NORM waste exceeding this amount, and there is an increasing amount of this, has historically gone to facilities in states such as Colorado or Texas which have facilities designed to dispose of NORM waste, an expensive proposition. A farmer outside of Glendive, Montana saw the opportunity, and recently opened a 23-acre facility that can take NORM waste up to 30 picocuries. As the closest NORM disposal facility to the Bakken, he's seen his business pick up rapidly. The Montana Department of Environmental Quality recently received an application for another oilfield waste facility landfill near Bainville, MT, even closer to the oilfield activity, located just across the state line. Disposing NORM waste in nearby Montana cuts costs about in half, so expect a quick ramp up for this alternative. Article here

Unconventional Oil & Gas News

Status Report: Does the Tuscaloosa Marine Shale have commercial potential?

The short answer is, maybe. Only 20 or so wells have been drilled laterally into the formation, with mixed results. Devon lost interest after some duds and sold its acreage to Goodrich recently. This pretty much leaves Goodrich and Encana as the only players spending significant money in the play, and 2014's drilling results will likely determine whether or not they stay. Goodrich will spend $300 million in 2014 running two rigs, adding a third early next year, while Encana will spend $200 million to $300 million running two to three rigs. Wells are expensive and take a long time to drill, with expected EUR's between 400,000 and 800,000, which means the economics don't match up with the premier tight oil plays. Probably why the play's appeal has been limited to companies that came late to the liquids-rich shale plays. The good news: the acreage is cheap (especially compared to the Bakken), the light, sweet oil brings a premium price, and there is plenty of takeaway capacity to nearby refineries. Article here

Environment and Safety News

EOG pays $10 million to rig worker injured in Bakken fire

The payment came from EOG to settle a law suit for injuries that rig worker Gary Roberts received when the rig he was working on caught fire in November 2010, according to Roberts' attorney. The suit alleged that Roberts was not sufficiently trained and lacked flame retardant clothing, and there were no working fire extinguishers on site when the fire occurred. EOG did not own the rig that caught fire, but the company was in control of the drilling operation and had an employee on-site at the time of the accident, according to a March order from District Court Judge David Cybulski in which he ruled that EOG was liable in the case. Article here

North Dakota Governor ask pipeline operators to go "above and beyond" federal safety requirements

The massive expansion in pipelines due to the record amounts of oil coming from the Bakken have created concern among North Dakotans for pipeline safety. Tesoro's recent 20,000 barrel spill in rural North Dakota added wood to the fire. In response, North Dakota Governor Jack Dalrymple is forming an advisory panel to look deeper into the matter. "We expect pipeline operators in North Dakota to use best practices and that may mean going above and beyond federal requirements to improve the monitoring and control of pipeline flows," he said in a statement Monday. Article here

Mergers and Acquisitions News

Devon Energy buys into Eagle Ford Shale for $6 billion

With too much natural gas in its asset mix, Devon has reached deep into its pockets to purchase 82,000 acres in the Eagle Ford's liquids-rich section. Seller GeoSouthern, and equity-backed E&P company, saw its daily production hit 53,000 bpd this year--Devon thinks in can triple this amount in three years, and has 230 wells planned for 2014. Article here

Gastar Exploration purchases 24,000 acres in Oklahoma

The company paid Lime Rock Resources $172 million for the acreage, located in Kingfisher, Logan, Oklahoma and Canadian counties. Article here