Frack Now, Pay Later: A New Era in U.S. Oil?

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

Via: Real Clear Energy

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Obama's Scorched Oil and Gas Policy

The clock is ticking on the Obama Administration. With only 18 months remaining in his final term, federal energy planners and agency regulators are working as quickly as possible to impose new rules on the oil and natural gas industry.

As one industry lobbyist told the Houston Chronicle, “The agencies are all in hyperdrive to get the rules across the finish line or have them well-positioned in the regulatory queue so that their path forward past Jan. 20, 2017, is clearly established.”

The rush to increase regulations on oil and natural gas is nothing but bad news for an industry that has already contracted because of a large drop in wellhead revenues. Ditto for consumers who need infrastructure investments today for affordable, plentiful energy tomorrow.

Oil and gas has been a rare bright spot in Obama's economy—and in spite of, not because of, his policies.

Ending four decades of concern over imported oil, the United States is now the largest oil and natural gas producer in the world. Advanced technologies, including hydraulic fracturing and directional drilling, have harvested an energy bounty that has lowered costs for consumers, created thousands of jobs, and nearly single-handedly lifted the nation from the depths of The Great Recession.

Punishing the good in the name of climate change (is there anything not related to climate change these days?) is a legacy issue for the President. Yet some measures in Obama's thicket of impositions could impede the fight against his so-called “greatest threat to future generations.”

By proposing new methane emission regulations, for example, the administration will hike drilling costs for natural gas. Even the EPA’s own data shows that methane emissions already have fallen dramatically due to the industry’s voluntary actions and rules already on the books.

The administration also has finalized new hydraulic fracturing regulations for wells drilled on public lands despite a new EPA report that found “no widespread, systemic impacts to drinking water sources.”

Of course, the administration’s fracking rules will not apply to this White House's new prohibitions on nearly 300 million acres of federal land. The Arctic National Wildlife Refuge, portions of the Arctic Ocean, and large tracts of several Western states are among the parcels the White House is preserving “for future generations.”

Moreover, the offshore leasing plan for 2017–2022, which the Interior Department hopes to complete soon, does not include leases in the energy-rich eastern Gulf of Mexico or along the Pacific Coast. Instead it proposes to allow the industry to pick over bones in the previously explored and developed western Gulf and possibly in a small portion of the Atlantic Outer Continental Shelf.

There also are new offshore drilling rules, including a regulation requiring Arctic drillers to have two rigs on hand—one to drill the well and a backup rig in case a relief well is needed. This, despite a National Petroleum Council report calling on the administration to encourage Alaskan offshore drilling now or become more dependent on foreign oil in the future.

All of these regulations, including tougher ground-level ozone standards, are moving forward in lock-step with the regulations on carbon dioxide from power plants. This drastic, controversial proposal combined with other regulations will shutter scores of coal-fired power plants andreduce electrical power by as much as 130 gigawatts, enough to serve the residential needs of more than 100 million Americans.

These new regulations are just a few of the counterproductive, top-down rules which will be proudly trumpeted at the next presidential library. They will be added to the plethora of similarly misguided edicts such as the ethanol mandate as well as the “sue and settle” rulemakings accomplished by collusion between administration officials and environmental groups.

Based on this record, it is abundantly clear that the administration’s final months of “hope and change” will be marked by continuing hostility toward natural gas, oil, and coal. The overriding goal—in addition to making electricity costs “necessarily skyrocket”—is to keep these fuels in the ground. This raft of regulations is the president’s workaround to his inability to push cap-and-trade legislation or a carbon tax through Congress.

The administration’s own energy analysts admit the economy runs primarily on natural gas, oil, and coal--and will for decades to come. As a result, Obama's vindictive energy agenda has become a rear-guard assault on neutralizing, if not reversing, one of the great industrial achievements of our time.

 Via: Real Clear Energy

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THE $128 TRILLION RIP-OFF

The biggest theft in world history is occurring right here, right now—literally, right under our feet. It’s a theft of wealth that measures in the 15-digits—wealth that’s being taken away from its rightful owners, the American people, and being sacrificed, in effect, to the Green Gods of Austerity and Sacrifice.

The exact size of the loot? It totals $128 trillion in recoverable oil and natural gas, according to the Washington, D.C.-based Institute for Energy Research (IER). To put that $128 trillion sum in perspective, we could use a mere 13 percent of it to pay off the entire US national debt. Indeed, that $128 trillion is almost 35 times greater than federal expenditures for fiscal year 2014, and more than seven times the annual US GDP.

We might note that IER’s $128 trillion estimate includes only oil and gas; no one has any real idea how much more wealth—in the form of coal, rare earth elements, and who knows what else—is to be found in the the 28 percent of land in the US that’s owned by federal government.

At present, there’s no plan whatsoever to do anything to utilize this wealth as the Obama administration is seeking ever-tighter federal regulations, and, beyond the Keystone Pipeline, Republicans hardly ever raise the issue.

In fact, the IER study was released more than a year ago, and nobody seems to have noticed. Since then, we’ve had endless negotiations over some sort of “grand bargain” to raise taxes and cut earned senior entitlements—and in the meantime, we’ve been ignoring the grandest bargain of all: abundance.

Seems more than a little ridiculous, doesn’t it? That is, for the U.S. to be scraping along, fiscally and economically, while leaving fallow such gargantuan natural resources?

Moreover, to get at this wealth, we don’t need to drill in Yosemite or other National Parks; we simply need to access the vast federal lands on and offshore in the "Lower 48," Alaska, and the many overseas U.S. territories in the Caribbean and the Pacific.

So how did this wealth freeze-out happen? How did so much treasure get locked up and unused? Here’s how: in the early 19th century, the federal government sold off or gave away most of its lands in the east. Then, in 1862, came the first of a series of Homestead Acts, which led to the glorious privatization of much of the Midwest. Yet the mostly arid lands west of the Mississippi were generally not seen as viable property for homesteading, and so Uncle Sam continued to hold title. Then the environmentalists came along and realized that they could gain de facto control of more than a quarter of US territory. Congress repealed the Homestead Act in 1976, and after that, the environmentalists happily proceeded with their no-growth plans. 

However, the Green land-grabbing did provoke a pro-growth backlash in the West, the so-called “Sagebrush Rebellion,” dedicated to opposing enviro-liberalism. The Sagebrush Rebels helped Ronald Reagan carry every Western state, save Hawaii, in the 1980 presidential election; the hope was that Reagan would open the West to development. Unfortunately, their point man in Washington, Interior Secretary James G. Watt, turned out to be bit of a kook with a nasty sense of humor; he was forced out of office in 1983, and that was the end of the Sagebrushers as a force.

In the decades since, Green Democrats, joined by more than a few Green Republicans, have banned drilling everywhere they could. The bans on offshore drilling are a nice perk for rich people who treasure their ocean views, but it’s not so great for everyone else who needs money or a job.

Meanwhile, other countries have charged ahead. Norway, for example, eagerly drills in the waters outside of its scenic fjords; that’s why the Norwegian Sovereign Wealth Fund is worth $783 billion—not bad for a country of just five million people. When the oil is gone, the oil wells will be gone, and Norway will still be rich because of all that money in the bank.

Via: Breitbart

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Beware of Falling Gas Prices: Ritholtz Chart

The American Automobile Association reports that the average price of a gallon of regular gas is $3.19. (The U.S. Energy Information Administration has regular gas at about $3.26).

Via: Bloomberg

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Longest Streak Ever for $3-Plus Gas

(CNSNews.com) - The national average price of gasoline will surpass $3.00 a gallon Tuesday for the 1,000th consecutive day -- the longest stretch above $3.00 on record, according to the American Automobile Association (AAA).

“Paying less than $3.00 per gallon for gasoline may be automotive history for most Americans,” said Bob Darbelnet, president and CEO of AAA. “The reality is that expensive gas is here to stay, which is tough on millions of people who need a car to live their lives. “

The current thousand-day streak began on Dec. 23, 2010.

AAA is predicting that the national average will remain above $3.00 a gallon for at least another thousand days, barring a major economic recession.

“Spending more on gas concerns consumers because it reduces savings and spending for everything else we need,” Darbelnet said. “Our leaders can help alleviate this economic burden by encouraging a national policy that stimulates production, limits price volatility, ensures greater efficiency and promotes alternative energy.

Via: CNS News
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In the Energy Debate between Palin and Obama...Obama Lost

You  know we can't just drill our way to lower gas prices. If we're going to take control of our energy future, and can start avoiding these annual gas price spikes that happen every year when the economy starts getting better, world demand starts increasing, turmoil in the Middle East or some other parts of the world, if we're going to stop being at the mercy of these world events, then we need a sustained, all-of-the-above strategy that develops every available source of American energy - oil, gas, wind, solar, and nuclear, and biofuels, and more.

President Obama made these remarks in February of 2012 at the University of Miami.  The President was criticizing the longstanding argument of political rival Sarah Palin, who urges the nation to "drill, baby, drill."

Palin expounded on these sentiments in 2010:

Although the Left chooses to mock the mantra of "drill, baby, drill," and they ignorantly argue against the facts pertaining to the need for America to responsibly develop her domestic supply of natural resources, surely they can't argue the national security implications of relying on foreign countries to extract supplies that America desperately needs for industry, jobs, and security. Some of the countries we're now reliant upon and will soon be beholden to can easily use energy and mineral supplies as a weapon against us.

In 2011, in an interview with the CBS affiliate WTKR in Hampton Roads, Virginia, the president contradicted his own remarks suggesting that oil prices cannot be lowered by arguing:

Via: American Thinker

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The EPA’s Planned Destruction of the U.S. Economy

If there was no other reason to defeat President Obama in November, it would be the planned destruction of what is left of the U.S. economy by the Environmental Protection Agency.

In “A Look Ahead to EPA Regulations for 2012” the minority staff (Republican) of the U.S. Senate Committee on Environment and Public Works has issued a chilling review of a massive rise in the costs of living for all Americans, massive layoffs in all sectors of the economy, and the destruction of the nation’s energy and manufacturing sectors.

The report provides a nightmarish look at the regulations that EPA plans to initiate, having put them under cover prior to Election Day in order to hide President Obama’s agenda of attacking the energy sector and businesses large and small.
Here’s a list of the regulations:

• Greenhouse gas regulation via the Clean Air Act
• An Ozone rule
• Hydraulic Fracturing
• Florida’s Numeric Nutrient Criteria
• EPA’s water guidance under the Clean Water Act
• Stormwater regulation
• Tier II Gas regulations
• Boiler MACT rule
• Cement MACT rule
• 316(b) Cooling Tower rule
• Coal ash
• Farm dust regulation
• Spill prevention control and Countermeasure rule

These proposed regulations in aggregate, if enacted—that is to say if not stopped by congressional action based on Republican control of both the House and Senate—would prove disastrous, starting in 2013.

For example, the utterly bogus greenhouse gas regulations are based on the debunked global warming theory that says too much carbon dioxide (CO2) in the atmosphere is causing the Earth to heat when, in fact, the Earth has been cooling since 1998 and there is zero evidence that CO2 has any impact on the temperature of the planet.

Via: Canada Free Press

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Gas Prices Hit Record High In CA

California Gas Stations Shut as Oil Refiners Ration Supplies

Gasoline station owners in the Los Angeles area including Costco Wholesale Corp. (COST) are beginning to shut pumps as the state’s oil refiners started rationing supplies and spot prices surged to a record.

Valero Energy Corp. (VLO) stopped selling gasoline on the spot, or wholesale, market in Southern California and is allocating deliveries to customers. Exxon Mobil Corp. (XOM) is also rationing fuel to U.S. West Coast terminal customers. Costco’s outlet in Simi Valley, 40 miles (64 kilometers) northwest of Los Angeles, ran out of regular gasoline yesterday and was selling premium fuel at the price of regular.

Prices Jump

Gasoline at the pump gained 8.3 cents to $4.315 a gallon in California yesterday, according to AAA.com, 53.1 cents more than the national average of $3.784. In Los Angeles the price was $4.347. Gasoline futures for November delivery on the Nymex rose 14.34 cents to settle at $2.9429 a gallon, after falling yesterday to a 10-week low. Retail price movements tend to lag behind those of futures.

“Product supply in California has tightened, especially in Southern California, due to refinery outages,” Bill Day, a Valero spokesman at the company’s headquarters in San Antonio, said by e-mail.

Exxon’s Torrance refinery is restoring operations after losing power Oct. 1. Phillips 66 (PSX) is scheduled to perform work on gasoline-making units at its two California refineries this month, two people with knowledge of the schedules said. A Chevron Corp. (CVX) pipeline that delivers crude to Northern California.

Via: Bloomberg

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