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August 20, 2014
CRUDE OIL INVENTORY/’000 bbls (Week Ended 8/15/14)
Current: 362,545
Actual Build/(Withdrawal): (4,474)
Economist Average Estimate: (1,140)
Previous: 367,019
Click here for the chart with five year averages.
CRUDE OIL IN THE MEDIA
*Colorado Governor Addresses EnerCom’s The Oil & Gas Conference 19® – Oil & Gas 360®
After a full morning of investor presentations by leading oil and gas companies including Range Resources (ticker: RRC), Core Laboratories (ticker: CLB) and Whiting Petroleum (ticker: WLL), Colorado Governor John Hickenlooper took the stage during a surprise visit to EnerCom’s 19th Oil & Gas Conference today. The governor pointed out that “unemployment in Colorado is down to 5.3% to pre Great Recession levels. Colorado was recently named the No. 1 fastest growing economy,” the Governor told the audience of approximately 2,000 attendees at North America’s largest oil and gas investor conference at the Westin Downtown Denver. “We want to continually improve the social contract, but at the same time our job is to create a regulation environment that allows businesses to succeed.” The governor noted that oil and gas is a $30 billion industry in the state that delivers 120,000 jobs with an average wage 30% above the state’s median wage. – Read More
*Pickens: Brent crude will be above $100 forever – CNBC
Oil and gas entrepreneur T. Boone Pickens thinks international oil prices will stay high indefinitely—over $100 a barrel—despite recent declines in the futures market. At the Investools 4th Annual Investor Education Conference in Dallas, Pickens reminded investors that OPEC’s largest producer, Saudi Arabia, needs oil prices to remain elevated in order to maintain its social spending programs; therefore, the Organization of the Petroleum Exporting Countries (OPEC) will simply reduce production whenever it must in order to keep prices high. “Oil is not a free market. OPEC sets the price of oil,” Pickens told CNBC. “They can set the price because they produce 30 million barrels a day out of 92 million for the world…those 30 million barrels can be the swing factor.” – Read More
*Alaska Oil Tax Repeal Measure Losing – The Wall Street Journal
An Alaska ballot measure to repeal a 2013 oil tax law that drastically cut the amount major oil companies in the state pay was losing early Wednesday morning. The referendum was losing by a 52.1% to 47.9% margin, with 80% of precincts reporting results, but it was still too close to call, according to the Associated Press. The No on One campaign opposed the measure to revive oil tax policies enacted under former Gov. Sarah Palin. The state’s Republican and business establishments waged a $15 million campaign—funded in large part by three oil companies—to defeat the question. Willis Lyford, a spokesman for the No on One campaign, said he expected that the results would hold and the measure be defeated once all the votes were counted. Outspent by more than 15-to-1, supporters of the ballot question wanted to revert to the old oil-tax structure that featured progressive taxes when oil prices rose. The 2013 law backed by state Republicans carried a flat tax on revenues.. – Read More
*Welcome the Shale Boom, Welcome Jobs – Oil & Gas 360®
Fred Upton, Chairman of the House Energy & Commerce Committee, referenced this week’s Fox News special report entitled “No Fracking, No Boom” in his blog update today. The blog compared the jobs-driven economic uplift in Pennsylvania to New York’s southern counties’ six year employment decline in the absence of shale development in his blog post today. The Chairman’s state of New York has placed a moratorium on hydraulic fracturing shut the shale boom out of the state. Pennsylvania Governor Tom Corbett summed things up as follows: “The quality of life has tremendously increased, particularly for the people in this region, because they’re able to stay here and have jobs and keep families here.” OAG360 outlined the impact of natural gas on the two states in a recent feature article. – Read More
*County officials roll out welcome mat for proposed Bakken refinery – The Billings Gazette
Yellowstone county officials are rolling out the welcome mat for the developers of a proposed $500 million oil refinery being considered for the Billings area. “We’re glad you’re here,” Commissioner Jim Reno said during a presentation by Quantum Energy Inc. “What can we do to help you?” asked Commissioner John Ostlund. Billings is one of five sites, three in Montana and two in North Dakota, being considered for new “clean energy centers,” plants sometimes called microrefineries, that would process crude oil from the booming Bakken oil play. Andrew Kacic, chief executive of Quantum Energy, said existing infrastructure and a ready labor force both make Billings an attractive option for the proposed plant. He said the Billings project would create 500 to 600 construction jobs. The 100 to 150 permanent employees would make at least $100,000 per year, he said. – Read More
*Is re-fracking the next big trend in the oil patch? – San Antonio Express News
Tens of thousands of new oil and gas wells have been drilled and hydraulically fractured in recent years — part of a shale boom that has spread across the U.S.Could re-fracking some of those existing wells be the next big trend in the oil patch? Robert Drummond, president of North America for oil-field service company Schlumberger, said that continually improving fracturing techniques will make companies question whether it makes more sense to spend money drilling a new well or re-frack an existing well. “The re-frack model going forward will challenge the economics of drilling new wells in some fields,” said Drummond, who spoke at a World Oil breakfast event in San Antonio on Tuesday at the St. Anthony Hotel. – Read More
*Mexico Prepares for Hydrocarbon Bidding War; Supermajors Lie in Wait – Oil & Gas 360®
For 76 years, Mexico’s state-owned oil company Petroleos Mexicanos, or Pemex, has been the government-enforced monopoly over all of the country’s oil and gas industry efforts. Roughly one-third of all of Mexico’s tax revenues is derived from Pemex, according to Reuters. Like many other countries with government-owned oil and gas monopolies, Mexico has not reinvested enough in Pemex for it to function properly as a production and exploration company. In 2012, Pemex paid $69.4 billion in taxes on $69.6 billion in pretax profits, a 99.7%tax rate. Mexico has recognized the problems and is trying to recover, much like Algeria and Iraq tried earlier this year. On August 11, Mexico passed a comprehensive energy reform bill to open up its oil and gas sector to private and foreign investment. This is just in time, considering how Pemex predicted its lowest production rate in 24 decades back in June, marking its seventh consecutive quarterly loss according to Bloomberg. Mexico currently only produces around 2.5 million barrels per day, which is roughly one-quarter less than its peak of 3.4 million barrels per day in 2004 (26% decrease). – Read More
*Exclusive: Iraqi Kurdistan oil pipeline export capacity to double – Reuters
The capacity of Iraqi Kurdistan’s independent oil pipeline will almost double to at least 200,000 barrels per day by the end of this month, helping the semi-autonomous region increase exports and revenue, industry sources and officials said.Oil revenues are a lifeline for the Kurdish Regional Government (KRG) in northern Iraq, whose peshmerga forces are being supported by U.S. air strikes in their battle against the radical Sunni militants of Islamic State. “Work to increase the capacity will probably be completed by the end of this month. Once it is completed, pumping can increase to up to 220,000 barrels per day (bpd),” one Turkish official told Reuters. Industry sources also said the capacity of the pipeline to Turkey, which began operating at the start of this year, was set to rise to around 200,000-220,000 bpd from 100,000-120,000 bpd before the flow stopped for upgrade work. One of the sources said capacity could climb to 250,000 bpd in two to three months’ time. – Read More
*Apache Makes Big Oil Discovery off Western Australia – The Wall Street Journal
U.S.-based Apache Corp. said an exploration well off Western Australia’s coast had found as much as 300 million barrels of crude, in what would be one of Australia’s largest oil discoveries in decades. The result from the Phoenix South-1 well in the Canning Basin could reopen a frontier for oil exploration that some international energy companies abandoned decades ago after wells turned up dry. “The oil and reservoir quality we have seen point to a commercial discovery,” said Thomas E. Voytovich, a senior executive at Apache’s international arm. “If these results are borne out by further appraisal drilling, Phoenix South may represent a new oil province for Australia.” “It will take two to three months to work out the actual recoverable volumes from the discovery,” said Simon Andrew, an energy analyst at Perth-based broker Hartleys. Australia needs new sources of oil to replace fast diminishing reserves from existing fields. Australia’s oil production last year fell 17% to 416,000 barrels a day—its lowest level since 1972, according to BP. – Read More
*Petrobras Brings in North Jupiter Well, Achieves Production Records in July – Oil & Gas 360®
Petrobras (ticker: PBR), the Brazilian integrated oil and gas company, announced today the extension of the Jupiter discovery in Santos Basin pre-salt block BM-S-24 following drilling operations at well 3-BRSA-1246-RJS (3-RJS-732), informally known as Apollonia. This well, which is situated 296 km off the coast of Rio de Janeiro, at a water depth of 2,183 meters, is the fourth well drilled in the Jupiter area and is eight km to the southwest of a discovery well (1-RJS-652A). Drilling activities have confirmed a hydrocarbon column of about 313 meters, starting at a depth of 5,166 meters, with rocks showing good porosity and permeability conditions. – Read More
*Bottleneck keeps Permian oil price far below benchmark – Houston Chronicle
Five years into an oil production revival in the Permian Basin, producers tapping the West Texas formation are selling their oil for $21 below the benchmark U.S. price because it’s difficult to get the crude to market. The price was $73.48 per barrel in Midland on Tuesday. In Cushing, Okla., the benchmark pricing point for U.S. crude contracts, the price fell $1.93 to $94.48. The $21 Permian discount was the widest since at least 1991, when regular tracking of the price differential began. Oil company executives acknowledged concerns about the situation in the Permian during a series of earnings conference calls in late July and early August. Besides headaches arising from the lack of transportation infrastructure to take oil and gas out of the region to distant ports and refiners, the Permian shale boom has created shortages of the water and sand that producers use in the hydraulic fracturing process that helped drive the production surge. – Read More
RESEARCH COMMENTARY
Capital One Securities – (8.20.14)
Macro Energy Thoughts
Midland continued its slide yesterday as it fell to $73.48 and the Midland/WTI differential slipped to -$21. Similarly, West TX Sour also fell $4.18 to $83.98. Texas crude has been getting hit hard on excessive supply in the region. WTI is also trading below $96 ahead of inventory numbers to be announced today. The market is looking for a 1.14MM bbl draw in crude inventories. Nat gas is trading down some, but it may have found some near-term support as temperatures across the Midwest should be above normal in the coming weeks.
*KLR Group – (8.18.14)
A significant, sustained disparity between crude oil/NGLs and natural gas prices incentivized the E&P industry to redirect capital toward liquids activity. With the transition to liquids development complete, the industry’s focus on operational efficiency has stabilized E&P capital intensity.
Since ’10, the industry pivot toward liquids development has coincided with a ~50% increase E&P capital intensity, which has increased to ~$32.50/Bbl. Correspondingly, capital allocation has inverted from one-third to two-thirds liquids.
As a consequence of the 2Q earnings cycle, the median target price of our coverage portfolio was unchanged. See Addendum A for an analysis of company target price changes. Addendum B displays capital spending by company. Addendum C presents liquids/gas capital allocation, liquids weighting and growth drivers by company. Addendum D presents the production outlook (’14E-’16E) by company.
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication.
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