The Weekly USA Oil & Gas Update: 17th February 2015

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

US Energy Information Administration (EIA) expects US crude production to continue rising through 2016

Despite dramatic rig reductions in the US, the EIA believes production will rise from 9.2 million bpd in January to 9.3 bpd for the year, and up to 9.5 in 2016. The EIA does not stand alone in these estimates--other forecasters have similar predictions--but consulting firm IHS Energy expects production to begin falling later this year. Why the continued rise despite the loss of almost 600 rigs? First, initial rig reductions typically come from the most marginal producing wells, leaving the remaining rigs to focus on the best producers. Second, despite the slowdown in drilling, a fairly large backlog of drilled-yet-uncompleted wells exists that can be put into production fairly quickly. According to most analysts, rising production levels will continue to impact pricing as inventories remain strong. The EIA expects Brent pricing to average $58 per barrel in 2015, but rise to $75 per barrel in 2016. Article here

Halliburton to cut up to 6,000 jobs

Last Tuesday, the company announced layoffs of up to 8% of its 80,000-strong workforce because of a "challenging market environment" resulting from low oil prices. Other oil services giants Baker Hughes and Schlumberger have announced similar-sized cuts earlier this year. Article here

Apache cutting rig count on low oil prices

The company's CEO John J. Christmann IV, announced that the company would reduce its rig count to 27 company-wide by the end of this month, down from 91 in 2014's third quarter. Apache spent much of 2014 repositioning itself as a domestic unconventional E&P company by selling international assets and purchasing additional US onshore acreage, with announced sales of $7 billion. For 2015, Apache plans to spend up to $2.3 billion in the US in capex with an average of 17 rigs, and the possibility it could ramp up if commodity prices rise. "We have planned our budget and operations in such a way that we can dynamically manage our activity levels and capital spending to respond quickly to material changes in commodity prices," said Christmann. "Should we see a meaningful rebound in oil prices from current strip levels or a notable shift in our cost structure, we have the organizational capability to add rigs and production quickly and efficiently from our ready inventory of highly economic projects in North America." Article here

Unconventional Oil & Gas News

South-Central Oklahoma Oil Province (SCOOP) economics rival Bakken and Eagle Ford

According to Wood Mackenzie's latest play analysis, the core of the SCOOP can be profitable down to $41 per barrel WTI. "The area has some of the largest producing wells in the Lower 48, bigger than the Permian and Bakken and comparable to the best parts of the Eagle Ford," said Woodmac analyst Brandon Mikael. "It's still one of the most exciting growth areas in the Lower 48 because of the stacked pay potential." Woodmac says that 2015 capex will exceed $4 billion in the region, with an average horizontal rig count of 60 for the year, down from a peak of 92 in 2014. Primarily a gas play, with oil and condensate making up only 22% of the production, Woodmac expects total production to grow to more than 1 million boe/d by 2020. Article here

Environment and Safety News

Arctic ocean drilling more likely after results of federal review

An environmental review driven by a lawsuit brought by environmental interests against Shell Oil's drilling activity provided some interesting results. The review left Shell's lease intact and raised the recoverable reserves from the Interior Department's estimated 1 billion barrels up to 4.3 billion barrels. Article here

Mergers and Acquisitions News

CH2M Hill pulls its Alaska business off the sale block

Last October, CH2M Hill made the announcement that its Alaska business, which largely supported oil & gas activities on the North Slope, was up for sale. Falling oil prices made buyers nervous though, and killed any deals that were in the works. According to VP for Corporate Development Matt McGowan, CH2M Hill is now back to business as usual and the company is no longer for sale. "We're back to business, developing our long-term strategy and making sure the Alaska division has the allocations of capital that it needs," McGowan said. The company employs approximately 1,900 workers in the business unit. Article here