The Weekly USA Oil & Gas Update: 16th September 2014

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

EIA forecasts crude oil production up 1 million bpd over last year

Daily output should average 8.53 million bpd in 2014 according to the US Energy Information Administration (EIA), up from 7.45 million bpd last year. For 2015, the EIA is forecasting another increase of 1 million bpd, to 9.53 million. "U.S. production levels are astounding," Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis, told Bloomberg News. "We will see further revisions, because these [drilling] technologies get better over time." Article here

Natural gas inventories rising quickly after last year's big drawdown

Typically, winter heating needs draw down natural gas inventories by 2 trillion cubic feet each year. Last year's especially cold winter drew down inventories by 3 trillion cubic feet, lowering inventories to their lowest levels since 2004. Rising production this year though, 6% over last year, has resulted in inventories quickly catching up to normal levels, according to the EIA, with production in Texas, Oklahoma, and the Gulf Coast leading with the biggest increases over average storage injection rates. Article here

Unconventional Oil & Gas News

Utica Shale to produce 1.5 billion cubic feet per day by October

This will be up from September's estimated 1.39 billion cubic feet per day, according to the EIA. This represents a tenfold increase form January 2012. The nearby Marcellus should increase to over 16 billion cubic feet per day next month. Article here

Environment and Safety News

Stanford-led study weighs risks and benefits of fracking

The study, "The Environmental Costs and Benefits of Fracking", published in the Annual Review of Environment and Resources, reviewed 165 studies to assess the total impact of utilizing hydraulic fracturing. "Society is certain to extract more gas and oil due to fracking," said Stanford environmental scientist Robert Jackson, who led the study. "The key is to reduce the environmental costs as much as possible, while making the most of the environmental benefits." Some of the more interesting findings:

• Although largely thought of as water-intensive, energy derived utilizing fracking actually uses 1/2 the water as coal to generate the same amount of energy, and 1/100th the water of ethanol.
• When natural gas derived from fracking is used to replace coal for generating electricity, benefits to air quality include lower carbon dioxide emissions than coal and almost none of the mercury, sulfur dioxide or ash.
• The act of hydraulic fracturing itself has an almost zero risk of ever contaminating water by migration through rock formations, but contamination from casing failure presents a risk in about 1% of wells drilled.
• The proper handling and disposal of wastewater is an important element in reducing environmental risk.

As you might expect, the benefits of replacing coal with natural gas are tangible and significant. Risks, namely casing failure and wastewater handling/disposal, are manageable with best practices and smart policies. Article here

Mergers and Acquisitions News

Pioneer sells Hugoton assets to LINN Energy

The $340 million deal represents a sale of all Pioneer's assets in the field including its interests in the Satanta gas processing plant. Article here