The Weekly USA Oil & Gas Update: 22nd July 2014

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

US approves seismic to assess Atlantic offshore oil reserves

The Obama administration on Friday approved a plan by the Bureau of Ocean Energy Management to allow seismic testing in the Atlantic ocean off the US coastline. In response, environmental groups expressed anger at the disruption seismic activity might make, as well as the possibility of future development. "We are taking every step we think is reasonable to take to try and put those protections in place, while still allowing surveys to occur," acting BOEM Director Walter Cruickshank said on a press call. With several companies having applications for seismic surveys, activity could start as soon as early next year. Article here

Drilling rigs targeting oil hits record level for fifth straight week

According to Baker Hughes, the number of oil rigs targeting oil hit 1,563, the most since Baker Hughes separated oil from gas rig counts in 1987. Natural gas directed rigs remained unchanged at 311. The largest increases came from the Granite Wash in the panhandle of OK and TX, as well as the Eagle Ford in south TX. The Permian has a highest number overall, with 563 rigs. Article here

Unconventional Oil & Gas News

Chesapeake increasing rig count in the Haynesville Shale

Back in 2009, the Haynesville Shale, located in northern Louisiana, was one of the leading shale gas plays in North America. High drilling costs and declines in natural gas prices prompted many operators to leave this play, or at least dramatically reduce capital spending. This included Chesapeake, who along with others turned their attention to liquids plays such as the Eagle Ford, or lower-cost gas plays such as the Marcellus. Going forward though, Chesapeake has expressed new interest in the Haynesville, committing to expanding to 7 to 9 drilling rigs this year. Why the change of heart, especially given almost everyone else's abandonment of the play? Namely, lower drilling costs and a strong regional demand. Chesapeake was paying over $10 million to drill and complete a well just two years ago. Now, through intense cost cutting and increased efficiency, the average well costs only $7.5 million, and this number could still go lower. This lower drilling cost, together with today's higher natural gas prices, pushes the companies unburdened Rate of Return (ROR) to over 100%. Add to this Louisiana's soon-to-be-online LNG export capabilities, and Chesapeake believes it has a winning business case. Article here

Environment and Safety News

Obama administration to unveil new oil train safety rules within weeks

Multiple crashes of trains hauling crude oil resulting in fires, and in some cases death, have prompted government officials to scrutinize and consider revisions for crude-transport safety rules. Within a few weeks, a suite of new rules are due to be unveiled by the administration which could have significant impacts in the entire industry. Changes will likely include slower train speeds, revised standards for wall thickness in new tank cars, and de-gassing of crude before loading. With approximately 10% of all US crude moved by rail, and five or six coastal refineries almost completely dependent on rail-sourced crude, a lot is at stake for the industry on how these rules are interpreted and implemented. Charles Drevna, President of the American Fuel and Petrochemical Manufacturers hopes the impacts from these rules are carefully considered. "Safety improvements are needed but that can be done without destroying the business." Article here

OSHA launches enforcement program in the Bakken after recording 34 oil & gas worker deaths since 2012

The agency's report, released last Tuesday, showed that the 34 oil worker deaths accounted for 87% of the state's job-related fatalities. Of these 34 deaths, 21 died while working on drilling rigs. The remaining 13 died by falls, "struck-by" hazards, or trench cave-ins. "These industries are inherently dangerous, and workers are exposed to multiple hazards every day. Their safety must not be compromised because demand for production keeps increasing," said Eric Brooks, OSHA's area director in Bismarck. "Workers are coming to these growing industries to find jobs, not catastrophic injury and preventable death. These employers have a legal responsibility to protect every employee that works for them." Based on this poor performance, OSHA launched an enforcement effort in the area this month. Article here

Mergers and Acquisitions News

Aubrey McClendon looking for another $2 billion for wildcatting

According to the prospectus recently filed, a subsidiary of McClendon's American Energy Partners LP wants the money for drilling, which will be raised through a blind pool investment. Article here

Swift Energy takes on Indonesian partner to pay for Eagle Ford development

PT Saka Energi Indonesia has agreed to pay $175 million in cash to participate in development of 8,300 acres in the Eagle Ford. In addition to the cash, PT Saka will also pay for a portion of the development costs.

"This arrangement marks the beginning of a strategic partnership to grow production in the Eagle Ford dry-gas window of South Texas," said Terry Swift, Swift chief executive officer. Article here