The Weekly USA Oil & Gas Update: 22 April 2014

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

American Gas Association says natural gas reserves up in 2013

According to the AGA's latest estimate, US producers added 35 tcf of reserves in 2013, with total reserves at 330 tcf. The AGA listed ExxonMobil Corp. as the largest US gas reserves holder, with more than 26 tcf, followed by Chesapeake Energy Corp., BP PLC, ConocoPhillips Co., and Anadarko Petroleum Corp. ExxonMobil, who manages their domestic gas production largely through subsidiary XTO, was far ahead of others. "In fact, ExxonMobil's current reserves position is more than twice the second largest reserves holder," it said. Article here

Crude oil inventories reach record high on Gulf Coast

Increasing production in the Gulf region and the opening of a new pipeline carrying crude to Houston from Cushing, OK have combined with a drop in crude oil inputs at Gulf Coast refineries due to seasonal maintenance, to produce an inventory 207.2 million barrels of crude oil, according to the US Energy Information Administration. "While [Gulf Coast] crude oil inventories typically build during the beginning of the year, this year's increase has been particularly notable," EIA said. The market has not appeared to respond yet with lower crude pricing, as WTI prices remain over $100 per barrel. Article here

Unconventional Oil & Gas News

Independent producers dominating US unconventional E&P at the expense of the majors

In terms of acreage in the three biggest shale oil plays, independents outweigh the majors 5 to 1. This staggering disparity is due to several factors. First, independents got the jump by acquiring good acreage in the leading shale plays before the majors really got started. "I can move 50 land men into a courthouse in a day," said Matthew Steele, CEO for Ursa Resources, while the the majors might require multiple sign-offs and months of review to acquire even a small bit of acreage. This enabled independents to buy up core acreage at lower prices. Second, majors turned their attention to large projects several decades ago, like heavy oil and ultra-deepwater drilling, which require large amounts of capital to be invested before years of return, putting a premium on large project management. This provided them with superior returns to low-margin domestic production, but left them largely unequipped for the economics of shale development. In contrast, independents focused on small, repeatable projects, which characterizes domestic unconventional development. These activities reward efficiencies and quick turnarounds on capital, a great match for independents' operating model. "You've got to have a relentless focus on productivity in shale," said Rod Skaufel, president of BHP Billiton's North American shale business. Consequently, the majors have struggled trying to keep up in domestic unconventional development. Shell lost $900 million in its US upstream business last year and is cutting back its US investment. After writing down the value of their US shale investment last year by $1.1 billion, BP is trying to boost its returns by splitting off its onshore oil & gas segment into a smaller, more nimble organization. ExxonMobil responded by first acquiring independent XTO, them moving the bulk of its US production into the more efficient XTO organization, with some success. The majors don't appear ready to through in the towel on domestic shale, but it appears they have a ways to go before catching independents. Article here

Domestic energy production gains are not coming from federal lands

The US has seen a dramatic increase in oil & gas production in recent years due to the application of new drilling and completions technology in unconventional plays. The gain has not come from exploration and production activities on federal lands, however. Julia Bell, a spokeswoman for the Independent Petroleum Association of America, said that oil and gas producers "are struggling to overcome immense bureaucratic confusion with a myriad of overlapping jurisdictions and regulations," on federal lands. Upstream E&P companies have largely avoided resource development on federal lands and focused on private land holdings for the recent, massive gains in oil & gas production. The President of the Western Energy Alliance, Tim Wigley said "The huge success of the oil and natural gas industry increasing energy security and bringing the country out of recession is despite, not because of, the policies of this administration." This has not kept the current administration from taking credit for oil & gas production increases. Article here

Environment and Safety News

Radioactivity in drilling and production waste receiving more scrutiny

Small amounts of naturally occurring radioactive material (NORM) can sometimes be found in drill cuttings, and in filters and tank bottoms in production operations. Disposal of these materials is becoming a problem, and the issue is receiving higher amounts of scrutiny from the public. It is estimated that 27 tons of NORM in filter socks are produced in North Dakota every day, and with no approved disposal site in state, all of this waste must be shipped to nearby states with NORM disposal facilities. In response to the problem North Dakota is revising their regulations around NORM, as are West Virginia and Pennsylvania, who have also experienced problems from NORM disposal. Article here