The Weekly US Oil & Gas Update: 30 December 2013

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

Expect increased drilling activity for 2014

Analyst RBC Capital Markets predicts 2014 new horizontal well counts of 20,061 for the US, up from an estimated 18,580 in 2013. RBC sees this rising again in 2015, to an estimated 21,551. Of these numbers the big four shale plays, the Eagle Ford, Bakken, Permian, and Marcellus, will comprise 12,399 wells in 2013 and 13,553 wells in 2014. Texas' Permian and Colorado's Niobrara formation are leading in growth rate for drilling activity. RBC has predicted a 30% year-over-year horizontal well count growth in the Permian next year, to 3,125 wells, and 18% year-over-year for the Niobrara, to 1,091 wells in 2014 and 1,252 in 2015. In regards to issues-to-watch, Barclay's Bank listed 'the growing inventory of undrilled wells' as the top of its short list, as E&P companies continue to stockpile potential drilling locations, setting the stage for a long-term growth story in oil and gas production. Article here

Next transportation option: shipping crude via barge on the Great Lakes

As pipeline capacity to transport crude oil lags the rapid growth in the upstream sector, exploration and production companies have looked to alternative shipping methods to get their product to market. Crude by rail has been the big winner here; this year a vast majority of the crude oil pumped out of North Dakota's Bakken formation will go to refineries on the coasts via rail. The Eagle Ford producers have also begun to look to rail as an option to move crude. Rail is expensive though, so companies are still looking for other options. As a new alterntive, Calumet will spend $20 million updating a dock in Superior, Wisconsin to load crude onto barges, which it will be able to ship to various refineries in the Midwest and Eastern US. "Given a lack of sufficient pipeline and rail capacity to transport crude oil from northern production fields to key refining centers, this project has received significant indications of interest from our customers," according to a company statement. Industry analysts speculate that the Great Lakes could be utilized to ship both Alberta oil sands or Bakken-derived crude to refining markets, especially attractive given Keystone XL's uncertain future. This of course carries risks; a crude spill into the Great Lakes could have significant environmental impacts. A 2010 spill into a Great Lakes tributary, the Kalamazoo River in Michigan, is still being cleaned up, after more than $1 billion in spent in remediation costs. Article here

Unconventional Oil & Gas News

Alberta adding 400,000 barrels per day of crude-by-rail capacity

It appears that crude from oil sands will make its way to the US regardless of whether or not the Keystone XL pipeline gets built. Between Canexus, Gibson Energy, and Kinder Morgan, oil rail-loading capacity in Alberta will more than double from its current 400,000 bpd to 800,000 bpd by the end of 2015, with much of this crude bound for US refineries. Currently, Canadian oil sands is sold at steep discounts to Brent or WTI-priced crude, making it attractive to refiners who use the low-priced inputs to boost their margins. Article here

Environment and Safety News

Wyoming has a growing problem plugging abandoned wells

The state's Powder River Basin is home to tens of thousands of coal bed methane (CBM) natural gas wells, mostly drilled in the last decade when gas prices exceeded $6/mcf. With gas prices well below that over that last four years, these wells are no longer economically viable, and many need to be plugged. Unfortunately for the state, a number of CBM producers were small companies who have subsequently gone out of business, leaving the liability of plugging these wells to the state. Currently, 1,220 wells are awaiting plugging on the state's orphaned well log (a well is orphaned when its owner is not identifiable, or is no longer financially viable). More worrisome are the thousands of wells that are idle and will need plugging soon. According to WOGCC data, Anadarko Petroleum has the highest number of idle wells in Wyoming, at 5,936. BP has 3,470 idle wells followed by WPX Energy with 3,035 such wells. All three of these companies are financially sound and able to plug their own wells, but many other companies may not be able to meet their financial obligation. The state has also discovered that its bonding program, put in place for just such an occurrence, in most instances does not require enough bond to cover the cost for plugging, leaving the balance with the state. Environmental groups and producer advocates, such as the Petroleum Association of Wyoming, support in increase in fees to cover these potential liabilities. Article here

Mergers and Acquisitions News

Kinder Morgan buys maritime tankers for $962 million

The midstream giant expands its sea-going hydrocarbon transportation with the acquisition of American Petroleum Tankers' fleet of five tankers, each with a 330,000 barrel capacity. Article here

Quantum Energy Partners sells Anadarko Basin assets for $336 million

Houston-based Quantum sold 10,000 acres located in Oklahoma to an undisclosed buyer. In addition to the acreage, the property produces 2,650 barrels of oil equivalent per day. Article here