Monday, August 17, 2015
Tuesday, August 11, 2015
With oil prices now dipping close to six-year lows, the energy sector is getting thumped across the board.
The double-dip will likely cause fresh cuts to spending, drilling, and staff. Last week, Baker Hughes reported a surprise uptick in the number of rigs drilling in North America, which jumped by 10 to 884 for the week ending on August 7.
Oil prices fell even further on the news, with both WTI and Brent dropping by 2 percent to close out the week. Even though the additional rigs are a rounding error when compared to the 1,000 rigs that disappeared over the past year, the markets took the data as evidence that the supply overhang may not balance out in the near term, as new drilling could be taking place before oil production has appreciably declined.
Over the course of the last year, the companies that arguably suffered the worst were those whose business relies on drilling activity. Oilfield service companies offer rigs, drilling completions, equipment, and other services that actually allow drilling to happen. When drilling slows down, their business dries up. They bear the brunt of a market downturn.
The unprecedented crash in the rig count North America, notwithstanding minor gains in recent weeks, inflicted damage most acutely on these oilfield service companies. With exploration facing a prolonged period of lower activity, a few service companies have come up with a novel, if desperate, approach to keep business alive.
Schlumberger and Halliburton, the two largest service firms, have offered operators the option to “frack now and pay later.” According to Reuters, the new offer amounts to the service firms acting as lenders to oil companies.
Halliburton saw its profit for the second quarter fall by more than a half billion dollars from a year before, and backed by $500 million in cash from asset manager BlackRock, Halliburton is looking “at additional ways of doing business with our customers,” Halliburton’s CEO Dave Lesar said recently.
The “frack now pay later” model that Reuters described consists of companies like Halliburton or Schlumberger covering the cost of drilling a well in exchange for a portion of the well’s production. That is not always a preferred option for operators, who may not want to give up a share in the project and would simply opt for a conventional service contract. However, for companies that are running low on cash and may start to see their credit lines shrink, paying later for drilling today sounds like a pretty good option.
“It's just a reflection of do they want to capture more of the value themselves or would they like to outsource all the risk and potentially much more of the upside to us?” Schlumberger Chief Executive Paal Kibsgaard said when reporting second quarter results in July.
Interestingly, much of the focus is on “refracking,” in which wells that have already been fracked once are simply fracked again. Refracking old wells is less expensive than fracking new ones, and while the volume of recoverable oil varies, some of the best refracking examples produce an impressive return.
The reason that the “frack now, pay later” model may be concentrated on refracking operations is because the technique is not well known throughout the industry and is still relatively new. That has wary operators unwilling to shell out the capital for something they are unsure of, especially now that they are safeguarding a shrinking pile of cash.
But Schlumberger is confident in the approach. While reporting first quarter earnings on a conference call with investors, Schlumberger’s CEO Paal Kibsgaard extolled the market potential for refracking. “I think you're talking billions, in terms of revenue opportunities, over an extended period of time,” he said. “And I think the key here is that we're so confident in our ability to identify the right candidates and execute the refracturing work that we're prepared to take significant risks, in terms of how we go about doing this work. In many cases, if we can select the candidates, prepare to foot the entire bill for the refracturing work and then get paid back in production.”
With “lower for longer” suddenly becoming the new prevailing mantra in the oil markets, the oilfield service giants may have to increasingly cover the costs of fracking and refracking as operators scale back.
The original article may be found at http://oilprice.com/Energy/Crude-Oil/Frack-Now-Pay-Later-A-New-Era-In-US-Oil.html
Thursday, August 6, 2015
OKLAHOMA CITY — Gov. Mary Fallin on Tuesday said changes in regulatory policies governing disposal wells will not have an immediate impact on the number of earthquakes in the state.
“I think it is important for the people of Oklahoma to understand that just because there is a change in regulatory policy doesn’t mean you are going to see an action next week or one month or two months or six months,” Fallin said. “It could be a year until we see a measurable difference. We are trying to figure out day by day what is the best thing to do.”
She was complimentary of actions taken by the Oklahoma Corporation Commission, which required some disposal well operators to reduce volume and the depth of waste-water injections. Disposal wells have been tied to the increased number of earthquakes.
Tim Baker, a staff member of the Corporation Commission, said the agency could go through the legal process to seek a moratorium on disposal wells, but it could be drawn out. The agency has had good cooperation from the industry and hopes to continue to use administrative remedies, he said.
Fallin’s comments came after a meeting of the Coordinating Council on Seismic Activity, a panel she created about a year ago that includes agency officials, members of the industry and academia.
The panel’s meetings are not required to be open to the public because it is advisory and does not make policy, Fallin said.
Fallin said crafting a response to the increased number of earthquakes requires balancing the interests of homeowners, business owners and the industry, which is responsible for a significant number of jobs in the state.
Fallin was asked what advice she would give to homeowners who are affected by earthquakes.
“I would advise Oklahomans that they should call their insurance agent and see what types of products are available,” Fallin said.
Angela Spotts, co-founder of Stop Fracking Payne County, said many insurance policies have high deductibles and cover only catastrophic damage. Spotts attended the press conference following the panel’s meeting.
Fallin was asked if the state has acted aggressively and done everything in its power to get on top of the situation, which has many residents on edge.
“We are sure trying to,” she said.
She said she believed the state has made tremendous progress in the past year.
“It really appears to me we are protecting the industry in this state,” Spotts said. “Their jobs are important. But my home and all the people I speak for that don’t have the courage to stand up and speak out, our lives, homes, property and well-being is every bit as important as the jobs in the oil and gas industry.
Friday, July 17, 2015
In a legal setback for the Obama administration's environmental agenda, a federal judge in Wyoming sided with the Attorney Generals of Colorado, North Dakota, Utah, and Wyoming, temporarily blocking implementation of the administration’s regulations for hydraulic fracturing on federal land, hours before they were set to take effect.
On June 23, the U.S. District Court of Wyoming issued a preliminary stay to Interior Department’s Bureau of Land Management (BLM) planned June 24th launch of the administration’s first major rewrite of fracking regulations on energy companies that lease federal land.
Oil-and-natural-gas-heavy Colorado, North Dakota, Utah, and Wyoming, sued to stop the rule, along with did two industry associations.
In remarks, presiding Judge Scott Skavdahl said the stay was necessary to give the federal government more time to explain how it developed the rule and how it considered public comments.
“It is too important an issue” for a quick ruling, Skavdahl said.
Associations, States, Applaud Decision
Kathleen Sgamma, vice president of government affairs at the Western Energy Alliance, one of the two industry associations which sued to stop the rule, issued a statement saying, “BLM was ill-prepared to implement an extremely complex rule in a short period of time. We highlighted how the BLM Washington office has not given sufficient guidance to the state and field offices that are implementing the rule, and as a result they were issuing confused instructions to companies on how to comply.
Sgamma continued, “The judge agreed that it makes no sense to implement an ill-conceived rule which could ultimately be overruled in court.”
Wyoming Gov. Matt Mead (R) applauded Skavdahl’s decision on Twitter, saying, “We appreciate the court is taking its time to carefully consider this important decision.”
Lawsuits were filed challenging the new rule within an hour of the BLM publishing them in March.
The standards addressed well construction, wastewater storage and fracking chemical disclosure.
The four states involved in the suit argued their own fracking regulations are sufficiently protective of public health and the environment and ought to supersede federal rules.
The Interior Department indicated it will comply with the judge’s order while considering its next step.
BLM, Congress Reviewing Next Steps
The Hill (6/23/15) reported, Interior Department spokeswoman Jessica Kershaw said, "The BLM is consulting with the Office of the Solicitor and the Department of Justice about the decision of the U.S. District Court in Wyoming to temporarily stay implementation of the hydraulic fracturing rule. While the matter is being resolved, the BLM will follow the court's order and will continue to process applications for permit to drill and inspect well sites under its pre-existing regulations.”
Colorado Attorney General Cynthia Coffman, told the June 24, Denver Business Journal, “We are pleased the court agreed that the new BLM regulations present serious and difficult questions that justified a stay of these rules’ effective date."
"We believe these rules intrude on Colorado’s sovereign right to responsibly and safely regulate the oil and gas industry within our borders," said Coffman.
Judge Skavdahl required the federal government to provide documents necessary for him to rule more fully on the injunction by July 22.
In the meantime, the Senate Interior Department appropriations bill, passed out of committee, would rescind the new federal standards and instead require the BLM to defer to state fracking regulations.
Saturday, June 20, 2015
Sunday, June 7, 2015
Friday, June 5, 2015
Sunday, November 24, 2013
Saturday, November 2, 2013
California increased its revenues last year by $8 billion a year, through passing the Proposition 30 and Proposition 39 tax increases.
Texas has added even more to its revenues, but did so a different way. The fracking boom added $28.6 billion in revenues to the Texas state budget during the last three years, or $9.3 billion a year.
Yet it’s a Los Angeles-based oil company, Occidental Petroleum, which owns 1.2 billion barrels of oil (or its equivalent) in Texas’ Permian Basin. Sixty percent of Oxy’s oil and gas extraction comes from carbon dioxide flooding, which is used when water injection and pumping no longer works.
Oxy has successfully used C02 hydraulic fracturing of rock — called fracking — in the Permian Basin in Texas since 2011, when the West Texas Intermediate benchmark crude oil price went over $100 per barrel. Currently, that price is $97 a barrel.
But since 2011, Oxy has not enjoyed similar success back here in the Golden State with its development of the Monterey Shale Formation. Oxy has suffered tough permitting delays, environmental opposition, threats of a permanent fracking ban and a lengthy 10-month delay in passing the SB4 fracking law.
Oxy reports that its Monterey Shale production of a piddling 370 barrels of oil per day can’t compare to its 45,000 barrels per day from other shale oil fields in California.
A big boost to drilling in California is that many wells can be drilled vertically and stimulated with cheaper hydrofluoric acid, rather than by the horizontal drilling and hydraulic fracturing of rock. This is why SB4 specifically regulates hydrofluoric acid flushing. Technically, matrix hydrofluoric acid stimulation is not fracking, but fracture acidizing is. Occidental found that fracking was not economic in the Monterey Shale several years ago.
Both state and local politics aren’t the only impediments to Occidental and other oil producers in California. Those holding shallower deposits have lower costs and potentially higher profits, according to Mike Edwards of Venoco Oil.
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