The Weekly USA Oil & Gas Update: 3rd March 2015

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

Crude oil producers running out of storage space

Supply continues to outpace global demand according to experts, at a rate of approximately 1.4 million barrels a day. The situation is not helped by the fact that the spot price is lower than the futures price, a contango, encouraging traders to put oil into storage waiting for higher prices. IHS analyst Premasish Das said that as much as 80% of commercially available storage in the US may be already utilized. "As the oversupply increases again in the second quarter, the contango structure will widen. This will further incentivize crude storage," Das said. Refinery planned maintenance and strikes have also lowered short-term demand exacerbating the problem. Over supply in the short term could cause prices to drop as low as $20 a barrel before recovering, according to Citigroup. Others concur that a price correction may be coming. "If you run out of space, prices tend to react a lot more violently to adjust that supply and demand imbalance and that's what we expect over the next few weeks," said Francisco Blanch from Bank of America-Merrill Lynch. Article here

Unconventional Oil & Gas News

Ohio production rising on strength of the Utica shale

According to the Ohio Department of Natural Resources, operators produced 164.8 billion cubic feet of natural gas last quarter, up 33 billion cubic feet from the previous quarter. Oil production also rose, to 3.6 million barrels for the quarter, up 545,000 barrels from the previous quarter. Top gas producers were Chesapeake, Gulfport and Antero, in that order. Production comes from 779 wells, up 15% from the previous quarter. Industry experts warn that low commodity prices may slow this growth down however. "I've seen rig count dropping. I've seen some companies exiting Ohio for a little while and focusing elsewhere," said oil & gas attorney Matt Warnock. Article here

Goodrich Petroleum stays the course in the Tuscaloosa Marine Shale

Known for its relatively high well costs, the Tuscaloosa Marine Shale has seen a large drop in interest from operators as crude oil prices have plunged. Goodrich remains committed to the play though. The company plans to spend $80 million to $100 million developing its 327,000 acres in the play in 2015, despite taking a write-down on the asset of $246 million in the last quarter. Management has been encouraged by the reduction in drilling expenses wrung out over the last year, from $13 million a well down to $10 million a well, and feels recent results are "very positive and improving." Article here

Environment and Safety News

BLM moving towards conservation strategy making listing of the Greater Sage Grouse unnecessary at this time

In an appearance before the US Senate Energy and Natural Resources Committee, Secretary of the Interior Sally Jewell said that the BLM's plans were being finalized and "I expect them to be issued this spring and turned over to FWS." The department's plan includes a budget and strategy to work with state governments to support conservation activities in three categories: managing resource uses in the bird's habitats, restoring and reconnecting the habitats, and assessing, monitoring, and reporting on conditions in priority habitats. Jewell was complimentary to the state's efforts. "One size clearly won't fit all," she said. "Wyoming has shown the way with its aggressive program. In Nevada, where the federal government owns 87% of the land, it has to set the pace." Article here

Mergers and Acquisitions News

Private equity investors see deals in the oil & gas sector

Crude oil price drops have had a major impact on the value of oil & gas assets around the globe. While some scramble to cut their losses, a group of investors with strong balance sheets see these times as an opportunity to buy-in while prices are low. Not everyone thinks the timing is good however. "You're catching a falling knife," said Simon Henry, chief financial officer at Royal Dutch Shell. Joseph Landy, co-CEO of Warburg Pincus thinks otherwise. "I think when these knifes are falling is when the opportunities actually present themselves. Everyone is running in the opposite direction," he recently told Reuters. According to 1Derrick, assets worth about $112 billion are up for sale, with about half those in the US, mostly shale fields. The only question to some is will it fall further. According to Marcel Van Poecke, managing director of Carlyle International Energy Partners, "[a]fter a crash like this, there is clearly more upside than downside. This will be a great time to invest but there is no need to rush into it, because I don't think we have seen the bottom yet."Article here