The Weekly USA Oil & Gas Update: 10 June 2014

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg / EIA

General News

Analysts expect Marcellus and Utica to drive natural gas growth in the US over the next 4 years

At a media briefing last week in Houston, Jeanie Oudin, the Lower 48 natural gas analyst for Wood Mackenzie, said to expect the Marcellus and the Utica to power most of the upcoming growth in unconventional natural gas production. Of the approximately 68 bcf/d of gas produced in the US, the Marcellus contributes 12 bcf/d. Expect that to grow to 20 bcf/d by 2018, as operators continue to increase production and decrease costs from what are already some of the most attractive economics in dry gas. Although not as prolific, the Utica will grow at an even faster rate, up from its current 1 bcf/d to above 5 bcf/d by 2018. Between the two plays in this year alone, operators plan to spend over $18 billion. The Utica and Marcellus are amazing stories in how quickly the picture on hydrocarbon production can change. Just 5 years ago, they contributed almost nothing to the US natural gas supply, but with new technology, industry ingenuity, and a tremendous amount of capital, they will provide 1/3 of the country's total needs by 2018. Article here

Unconventional Oil & Gas News

Wood Mackenzie: Eagle Ford to double oil production by 2020

Updating its forecasts last Wednesday, industry consultant Wood Mackenzie said that oil production from the Eagle Ford Shale should double, to over 2 million barrels per day by 2020. This would put the field on par with Alaska's North Slope during its peak years. Article here

More crude-by-rail this year than ever

As crude oil production continues to ramp up in the US and Canada, more gets to refineries via railroad than ever before. According to the Association of American Railroads, the first 9 months of 2013 saw 11% of crude transported by rail, up from almost nothing just a few years ago. While waiting on the Keystone XL pipeline to get approved, railroads will carry 50% more oil out of Canada next year than the controversial pipeline. The reason for the rapid growth in rail--crude is being produced in new areas due to advances in unconventional drilling and completions methods, with limited existing pipeline infrastructure, and rail is the most flexible way to get this oil to refiners who value it the highest. According to ExxonMobil's Rex Tillerson, "The production is just coming on faster than we can build the infrastructure, so crude by rail will continue. . . If we can't get a pipeline built, we're going to moved to the next alternative, which is either truck or rail." Article here

Environment and Safety News

North Dakota getting tougher on flaring

On June 1st, the state's Industrial Commission changed its policy to require energy companies to submit a plan to capture natural gas rather than flare it. The plan must be part of the permit process, and without a plan, applications for new wells will not be approved, said state officials. Most larger producers already have these plans in place, but smaller producers will now be forced to consider natural gas capture before drilling new wells. The Commission also plans to release a new rule addressing flaring at existing wells on July 1st, with the goal to reduce flaring from its existing rate of 30% of wells down to 10% of wells by 2020. North Dakota is responsible for a third of all gas flared in the US, according the EIA, due to lack of takeaway capacity. The lag has come because North Dakota lacks the gas gathering and processing infrastructure of more mature gas production areas, such as Texas or Oklahoma. An industry task force estimates that $2 billion will need to be invested to solve the problem. Article here

Mergers and Acquisitions News

McClendon's American Energy Partners buys $1.75 billion Utica acreage

After recent additional funding, American Energy Partners is buying more acreage in the Utica; 27,000 net acres in Ohio and 48,000 in West Virginia, both from East Resources. This brings American's total holdings in the play to 280,000 net acres. To develop this holding, American plans to be running four to six rigs by the end of 2015 and plans to drill 1,600 net wells. Article here