The Weekly USA Oil & Gas Update: 21st October 2014

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

Schlumberger expects higher oil demand in 2015 to drive exploration

Crude oil price have dropped approximately 20% since June of this year due to oversupply. The world's leading oilfield service provider isn't overly concerned though. "The key to the overall oil market is still that the global oil demand is currently set to increase by 1.1 million barrels per day in 2015, which will require growth in exploration and production investments," Schlumberger Chief Executive Paal Kibsgaard said on a post-earnings call on Friday. The International Energy Agency revised its demand estimates though earlier in the week, cutting its growth estimate by300,000 bpd due to weak global economics. How this affects global prices remains to be seen, and the impact on activity comes down to how long oil prices remain soft. "WTI oil at $80 a barrel for a short time is unlikely to have an impact on growth and margins for the services companies, but $80 oil for more than a month or two certainly will," William Blair & Co analysts wrote in a note. Article here

All three major tight oil plays increase production substantially over the past year

According to the US Energy Information Administration (EIA), the Eagle Ford leads in growth, up 42% from a year ago to an expected 1.61 million bpd this November. The Permian Basin, up 30% to 1.8 million bpd is the most prolific, while the Bakken grows 18% from a year ago to 1.19 million bpd. While the Permian and the Bakken are primarily oil plays, the Eagle Ford has the added benefit of also being a major natural gas producer. The EIA expects 7,040 mcf/d of natural gas production from the Eagle Ford in November, making it one of the nation's biggest producers. Article here

Unconventional Oil & Gas News

Marathon latest E&P company to have success in Oklahoma's Scoop

After Continental's recent comments about its success in the Scoop (the South-Central Oklahoma Oil Province), the resource play has receive a lot of attention. The Scoop targets the Woodford shale formation. Now, Marathon Oil has positive results to add to the excitement. In the second quarter, the company brought online a well with an extended lateral that had an IP of 2,000 bpd. Marathon Chief Executive Officer Lee Tillman told analysts the company will not share many details about its program until leasing has concluded. But, he added, "We're very bullish on Oklahoma." The company's four drilling rigs working the play are now focused on drilling to hold acreage. Article here

Low oil prices likely to affect Tuscaloosa and Bakken plays first

With oil near $80 a barrel, higher cost production is beginning to feel the pinch. According to analysts, the first areas we'll see cuts in drilling budgets will be frontier plays, like the Tuscaloosa Marine Shale located n Mississippi and Louisiana. Expensive, experimental wells often do not provide the returns at $80 to maintain activity. The next area under pressure is the Bakken, with its relatively high costs to drill and transport. How will lower oil prices affect drilling budgets overall? "There is going to be a quick response" among explorers to lower prices said Gabriele Sorbara, an analyst at Topeka Capital Markets. "The body language from the companies I follow is that capital expenditures next year will be flattish or slightly up, when the expectation had been for increases in the 5 to 10 percent range." Article here

Southwestern Energy still thinks Northwest Colorado may hold oil

Shell was originally optimistic about the Niobrara formation in the far Northwest part of the state, but ultimately gave up on the play and sold its acreage to Southwestern Energy. Recently, Southwestern doubled down on the play, with a purchase of an additional 74,000 acres for $31 million. It will take a while before Southwestern knows if its bet will pay off. In a recent statement to analysts, the company's CEO Steve Mueller said "[w]e think ultimately, it's going to take somewhere close to 10 wells to really get a point of where we understand enough to say go or no go." The company expects it will take a couple years to drill the 10 wells. Article here

Environment and Safety News

Radioactive waste in the Marcellus creates dilemma

Drill cuttings and produced water from deep in the earth often contain naturally occurring radioactive waste (NORM). Drilling and production activity in Pennsylvania's Marcellus play has produced a fair amount of waste material with this characteristic. Depending on the level of radioactivity, disposal options can be limited for waste material. Last year, 1,015 loads of material that was attempted to be disposed of at Pennsylvania landfills tripped radiation alarms. In the first half of this year, 421 trucks carrying oil & gas waste tripped radiation alarms. When this happens, companies typically either take the loads out of state to special disposal sites, or dilute the loads to acceptable levels by mixing with non-radioactive material. Companies are also looking for ways to utilize radioactive produced water in hydraulic fracturing, enabling them to dispose of it back into the deep formation and save the disposal costs. Pennsylvania's DEP expects to release a study on oil & gas NORM and its potential impacts before the end of the year. Article here

Mergers and Acquisitions News

Chesapeake sells Marcellus an Utica assets for $5.37 billion

Southwestern Energy agreed to buy some of Chesapeake's assets in its Utica and Marcellus fields in a deal valued at $9,625 per acre. The transaction includes 256 operated wells and an interest in 179 non-operated wells producing a total of 56,000 barrels of oil equivalent, about half in liquids. Chesapeake said the deal will not impact its growth plans, expecting to still grow production company-wide by 7 to 10 percent in 2015. Article here

Tesoro acquires pipeline assets from QEP for $2.5 billion

The deal includes 2,000 miles of pipeline in the Rockies and North Dakota with the capacity to carry 2.9 billion cubic feet of gas a day and more than 54,000 barrels of oil. Article here