The Weekly USA Oil & Gas Update: 12th May 2015

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

Analyst prediction - Price increases in crude short lived

According to analyst John Kilduff, $60 WTI crude will be short-lived. "I think the downward pressure is going to build," he said, noting that US oil companies are 'champing at the bit" to get back into the drilling market, which will increase production again. "We're a million barrels over last year. If we get more Iranian barrels on the market from the easing of the sanctions, the perfect storm will re-emerge--particularly later in the summer when our refiners go into maintenance to gear up for the winter heating season. You could see a real glut develop once again and it will get ugly." Kilduff went on to say that all the elements that brought oil down to the low $40s remain in place. Article here

Over half East Coast refineries' crude delivered via rail

According to the EIA, 52% of feedstock for refiners on the East Coast came from crude-by-rail early in 2015, mostly from North Dakota's Bakken Shale formation. The less expensive shale-derived crude has steadily displaced foreign crude brought in via tanker over the last five years. As this trend has accelerated, refiners have added unloading infrastructure to accommodate; there are now 10 facilities that can unload unit trains on the East Coast. With this sort of investment, and the superior economics of shale crude over imported crude, expect this trend to continue. Article here

Unconventional Oil & Gas News

Despite drilling slowdown, investment into Ohio's Utica up 26%

Based on a report from a Columbus-based law firm, investment into shale-related projects in eastern Ohio will top $28 billion, up 40% from last fall. According to attorney Aaron Bruggeman, activity has shifted from exploration and production to "downstream infrastructure". "We continue to see an increase in the number of pipeline projects, particularly interstate lines, gathering facilities, compressor stations and related investment," he said. Low commodities have put some projects on hold, but midstream and downstream infrastructure typically lag upstream investement, and this year's investments represent a catch-up to previous E&P activities. Article here

Environment and Safety News

North Dakota train derailment results in fire

A BNSF train carrying crude oil derailed in Heimdal, ND on May 6 and six cars caught fire. The train comprised 109 total cars, 107 carrying crude from the nearby Bakken shale. No injuries were reported, with local residents evacuating the area soon after the derailment. BNSF is moving forward with the cleanup. Article here

Mergers and Acquisitions News

Noble Energy to buy Rosetta for $2.1 billion

The acquisition provides Noble Energy with acreage in the Eagle Ford and the Permian Basin. "This is more about having an opportunity to get into some very high-quality assets that expands our position in the US and gives us more scale and leverage fro some of the expertise we developed," said Noble CEO Dave Stover. Article here

Plenty of equity moving into midstream

In the last few weeks, private equity players have put significant dollars into three midstream partnerships: Next Wave Energy Partners at $500 million; Nuevo Midstream Dos at $400 million; and Moda Midstream at $750 million. There's more capital looking for a home in addition to this, says David King, managing partner at US Capital Advisors. "If you look just at the energy and energy infrastructure-focused private equity credit funds that have recently closed or are currently in the market, we get an estimated of $80 billion of dry powder," he said. Leverage can make this available capital number much higher as well. The challenge will be in finding places to invest the funds. With all the capital pouring into the energy market, asset prices have not been dropping as expected for distressed companies. "These companies don't need to sell themselves or even shed assets. They're able to roll their debt, maybe pull in second lien deals," said King, as these companies utilize equity to restructure their balance sheets. Article here

SM Energy selling natural gas assets to focus on Bakken/Eagle Ford

The company has put up for sale assets in Oklahoma, Texas and Louisiana valued at $324 million, it announced recently. The company intends to focus on higher returns in the Eagle Ford and Bakken formations where it has a drilling inventory for over 20 years of current company production. Article here