Friday, December 28, 2012

U.S. Rig Count: -11 to 1,763

Baker Hughes reported that the U.S. rig count dropped by 11 this week to 1,763.  Oil rigs were down 13 to 1,327, gas rigs were up two to 431 and miscellaneous rigs were unchanged at five.  By type, horizontal rigs were up six to 1,111, vertical rigs were down ten to 477 and directional rigs were down seven to 175.  Among gas rigs, horizontal rigs were up five to 309, directional rigs were down three to 66 and vertical rigs were unchanged at 56.

EIA Storage: -72 Bcf to 3.652 Tcf

Another week, another missed target for natural gas storage.  The EIA reported that last week's storage level decreased by 72 Bcf to 3.652 Tcf.  The weekly withdrawal was 17% below last year (-87 Bcf) and 49% below the five year average (-140 Bcf).  The current storage level is now 2.3% above last year's record level (3.571 Tcf) and 12.8% above the five year average (3.239 Tcf).

Wednesday, December 26, 2012

Haynesville Shale Rig Count: +2 to 24

For the third straight week, the Haynesville Shale rig count was up last week.  The count was up by two to 24 with one new rig in both Louisiana (13) and Texas (11).  Over the past three weeks, the Haynesville count is up six rigs after bottoming out at 18 on November 30.  The beginning of a recovery or "dead cat bounce?"

One Recent Louisiana Haynesville Completion

  • AmSouth 31 #9-ALT, EXCO Operating: 9.943 MMcf/day IP on 17/64 in. choke at 6,806 psi; Perfs: 11,993-16,257, length: 4,264 ft.; Caspiana Field, DeSoto Parish, S31/T15/R12; res. A, serial #24447

Friday, December 21, 2012

EPA Updating Air Pollution Controls

The EPA has released new regulations on air pollution controls for soot and particulate matter and for industrial boilers and incinerators over the past week.  Reactions by representatives on both side of the debate, specifically environmentalists and industry, are not entirely happy, which generally indicates that the new rules struck a successful balance between the two sides.

The particulate matter regulation sets a new annual standard of 12 micrograms per cubic meter of air, down from 15, which was set in 1997.  The new standard will be implemented by 2020 and will especially affect utilities burning coal.  The rules on boiler emissions are the first of their kind and impose limits for mercury, acid gasses and fine particulate matter.

The new rules will add costs for entities using older equipment with inadequate pollution controls, so expect to hear lots of complaining about "government overreach."  But lest we forget, pollution is a human-generated problem, and by taking no action, we effectively subsidize companies to create a dangerous public health problem for which millions of people suffer.  Anyone who knows an asthmatic or someone with lung disease understands the negative impacts of particulate pollution and should appreciate these actions.

U.S. Rig Count: -25 to 1,774

The Baker Hughes rig count showed a 25 rig decrease this week, bringing the number of working rigs in the U.S. to 1,774.  Oil rigs were down 41 (!!!) to 1,340, gas rigs were up 13 to 429 and miscellaneous rigs were up three to five.  By type, horizontal rigs were unchanged at 1,105, vertical rigs were down 17 to 487 and directional rigs were down eight to 182.  Among gas rigs, horizontal rigs were up 15 to 304, directional rigs were down four to 69 and vertical rigs were up two to 56.

Louisiana's Severance Tax Trap

As the much discussed Fiscal Cliff looms, Louisiana residents are constantly reminded by newspaper headlines of looming budget cuts to health care, mental health and education systems caused by our budget woes.  These headlines make a recent report by the Pew Center on the States on unnecessarily costly tax incentive programs entitled "Avoiding Blank Checks" all the more poignant.

The Pew study highlights two Louisiana tax incentive programs, the Severance Tax Relief Program (STRP) for horizontal drilling and the Motion Picture Investor Tax Credit.  Both programs are now used extensively, but they have become very costly for the state.  For example, in FY 2009, the STRP cost Louisiana $239 million in lost revenue, up from $285,000 in FY 2007.

The STRP was established in 1994, long before horizontal drilling and hydraulic fracturing came together to create the Haynesville Shale boom in 2008.  The program, which is uncapped, exempts producers from paying severance taxes for a period of two years.  Because shale wells decline so quickly, the vast majority of the potential severance taxes would have been paid in the first two years.  The program likely won't be as costly to taxpayers in FY 2011 and 2012 because of the sharp decline in Haynesville drilling and completion activity, but the state has no business overlooking more than $100 million in annual potential revenue.

Thursday, December 20, 2012

EIA: Storage -82 Bcf to 3.724 Tcf

The EIA working gas report showed a decrease of 82 Bcf to 3.724 Tcf.  The weekly withdrawal was 18% below last year (-100 Bcf) and 43% below the five year average (-144 Bcf).  The current storage level is 1.8% above last year (3.658 Tcf) and 10.2% above the five year average (3.379 Tcf).  After getting so close to normal, storage levels are backsliding to dangerous levels.

Temperatures last week averaged 42.6 degrees, 4.7 degrees warmer than last year and 4.4 degrees warmer than the five year average.

Wednesday, December 19, 2012

New Louisiana Completions

  • Hardy 29-12-15 H #1, Chesapeake Operating: 11.088 MMcf/day IP on 22/64 in. choke at 5,715 psi; Perfs: 11,555-15,841, length: 4,286 ft.; Logansport Field, DeSoto Parish, S29/T12/R15; res. A, serial #244385 

Friday, December 14, 2012

Haynesville Shale Rig Count: +1 to 22

For the second straight week, the Haynesville Shale rig count was up, this time up one rig.  Texas was up one to ten and Louisiana held at twelve.  This week marks the return of J-W Operating to the Haynesville, as the company took over one of EXCO Resources' rigs.  Valence Operating is also back in Texas drilling a vertical rig in Panola Co.  Valence has been on-and-off with a rig over the past year several years.

U.S. Rig Count: -1 to 1,799

The Baker Hughes rig count dropped by one this week to 1,799.  Oil rigs were down one to 1,381, gas rigs were down one to 416 and miscellaneous rigs were up one to two.  By type, horizontal rigs were up two to 1,105, vertical rigs were down two to 504 and directional rigs were down one to 190.  Among gas rigs, horizontal rigs were up four to 289, directional rigs were down one to 73 and  vertical rigs were down four to 54.

Thursday, December 13, 2012

No New Louisiana Completions This Week

Things have really slowed down in the Haynesville Shale.  This week, there are no new Louisiana completions to report.  In the past several months, there were only 20 Louisiana completions in August, 2012 (actually completed, not reported), 15 in September and five so far in October.  While we would expect to see completions continue to decline, the lack of reported completions speaks volumes about the lack of activity.  By comparison, in 2011, a down year for the Haynesville, there were 71 completions in August, 67 in September and 56 in October.

As the chart below shows, declining completions certainly make sense with the declining rig count.  There is still a backlog of uncompleted wells, but they don't seem to be going anywhere fast.

This chart also shows that when gas prices do pick up, you will first see a wave of completions before you see a bunch of new rigs.

EIA: Storage UP(!) 2 Bcf to 3.806 Tcf

Proving that we are never quite out of the woods, the EIA reported a 2 Bcf net injection to working gas in storage, bringing the working gas in storage to 3.806 Tcf.  Quite a setback to the quest to regain normalcy, I'd say.  The net injection was way out of whack with last year (-79 Bcf) and the five year average (-113 Bcf).  The current storage level is 1.3% higher than the same time last year (3.758 Tcf) and 8.0% above the five year average (3.523 Tcf).  By comparison, last week, the difference between the current level and the five year average was 4.6%.

Temperatures last week averaged 49.3 degrees, which was 8.4 degrees warmer than last year and 9.3 degrees warmer than average.

Tuesday, December 11, 2012

Exxon's Updated Energy Outlook Sees More Natural Gas

Exxon released its annual forward-looking 2013 energy outlook report today, and the report sees a stronger market for natural gas than was indicated last year.  It's an interesting report that forecasts demographic and energy data through 2040, but I'll cherry pick some bits relevant to natural gas below.

Overall, Exxon expects natural gas to overtake coal for the second largest energy source by 2040.  Gas is expected to have a 65% growth rate compared to coal, which should decline slightly over the same period.

Demographically, Exxon sees world population growing to 9 billion by 2040.  By 2030, India should overtake China as the most populous country.  By 2040, India will still have a relatively young population while China's age distribution will look very much like that of developed countries.

Monday, December 10, 2012

A Bunch of New Texas Completions

  • Brent Miller Unit A6 #1H, Encana Corp.: 14.13 MMcf/day IP, 18/64" choke, 9,646 psi; Perfs: 14,442-20,426, length: 5,984 ft.; Carthage Field (Haynesville Shale), Nacogdoches Co., Survey: CHIRINO, JA, A-17 
  • Brent Miller Unit A6 #3H, Encana Corp.: 15.5 MMcf/day IP, 18/64" choke, 9,825 psi; Perfs: 15,544-20,473, length: 4,929 ft.; Carthage Field (Haynesville Shale), Nacogdoches Co., Survey: CHIRINO, JA, A-17 

Only One New Texas Permit

There was only one new Haynesville Shale permit filed over the past two weeks, and it was for a recompletion:
  • Risinger "J" Gas Unit #1HB, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co. Co., Survey: ROWE, J, A-585

One New LA Haynesville Completion Last Week

  • Martin Timber 36 #1, SWEPI, LP: 10.998 MMcf/day IP on 19/64 in. choke at 8,224 psi; Perfs: 13,680-18,232, length: 4,552 ft.; Grogan Field, Sabine Parish, S1/T9/R12; res. A, serial #243914

Sunday, December 9, 2012

Haynesville Shale Rig Count: +3 to 21

Yes, you read that right:  the Haynesville Shale rig count was up three rigs last week to 21 working rigs.  Texas was up two to nine and Louisiana was up one to twelve.

<---Let's get a closer look.  Small but pretty!  It's amazing (and sad) what gets me excited these days.

In Texas, both Anadarko and XTO Energy added a rig, while in Louisiana, Encana resurfaced with a new rig.  As we discussed two weeks ago, Encana's reemergence is part of their big joint venture with Nucor to supply the steel company with gas.  Word on the street is that this might be the only Encana rig working the Haynesville for a while, so we will temper our enthusiasm (but it's still nice to see them back).

Friday, December 7, 2012

U.S. Rig Count: -11 to 1,800

The Baker Hughes U.S. rig count showed an 11 rig decrease, bringing the number of working rigs to 1,800.  Oil rigs were down four to 1,382, gas rigs were down seven to 417 and miscellaneous rigs were unchanged at one.  By type, horizontal rigs were down seven to 1,103, vertical rigs were down two to 506 and directional rigs were down two to 191.  Among gas rigs, horizontal rigs were down seven to 285, directional rigs were down one to 74 and vertical rigs were up one to 58.

Thursday, December 6, 2012

EIA: Storage -73 Bcf to 3.804 Tcf

The EIA working gas in storage report showed a 73 Bcf net withdrawal, bringing the working gas in storage to 3.804 Tcf.  The net withdrawal was significantly better than the same week last year (-14 Bcf) and 43% lower than the five year average (-51 Bcf).  The current storage level is 0.9% below last year (3.837 Tcf) and 4.6% above the five year average (3.636 Tcf).  This week marks the first time since November 5, 2011 that the current year storage level has been lower than the previous year's.

Temperatures last week averaged 41.7 degrees, 5.9 degrees cooler than last year and 0.4 degrees cooler than average.

DOE Study Endorses Natgas Export

The U.S. Department of Energy's feasibility study on the impact of exporting natural gas has been completed and it shows that exporting natural gas would lead to "net economic benefits" and would be in the nation's best interest (another link).  It is now up to the DOE to rule on the approximately 15 LNG export applications pending.  The favorable study is not a guarantee of approval, but the DOE has stated that the results of the study would play into its permit decisions.

The study, which was completed by NERA Economic Consulting and had been delayed a couple of times, hardly creates an open-and-shut case for LNG export.  Critics will hammer away at the assumptions and conclusions, and the DOE is unlikely to take any action on approving new permits for at least a month while it absorbs the implications of the study and receives public comments.  The DOE has indicated that all applications will be considered on a case-by-case basis, and it is unlikely that all of the applications will be approved.

The winning argument showed that the net wealth transfer in exporting gas outweighed the slightly increased prices that manufacturers and home consumers would see.  The study was an economic study and did not consider environmental concerns.

There has been a great deal of lobbying on behalf of chemical producers and manufacturers who argue that the current "manufacturing renaissance" would be in danger if we begin exporting gas.  In truth, not all of the 15+ applications will be approved, and export will mainly serve to strengthen the domestic gas production industry by diversifying the consumer base, thus helping to build a floor under gas prices.  While manufacturers like the current low gas prices, what they really appreciate the certainty associated with a large, reliable supply.  Commodity prices can be hedged as long as the supply remains robust, and the manufacturing concerns knew all along that natural gas prices at the current level aren't sustainable.

This is great news for natural gas. I have to say that I was really sweating this one out.  While gas producers are going to lift a glass to celebrate this victory, the coal producers are probably pretty excited too.  They would love to see a permanent floor under gas prices that is higher than the cost of coal.

Wednesday, December 5, 2012

September Electricity Data

The EIA September report showing net generation of electricity by energy source shows both gas and coal dipping in market share.  Gas decreased by one percentage point from the previous month to 32.3%, while coal dropped by the same margin to 37.6%.  Other energy sources increased by 1.9% to 30.1%.  Year-to-date versus 2011, gas is up 6.7 percentage points to 31.4%, while coal is down 5.8 points to 36.5%.

September NatGas Production and Consumption Data

Last week, the EIA released its monthly natural gas production and consumption data through September 2012.  Bottom line, production is higher than average, but so is consumption, thanks to increased usage by utilities.

Net dry gas produced in the U.S. was 1.973 Tcf, which was 3.3% higher than last year and 24.3% higher than the ten year average for September.  YTD production of 17.9 Tcf is 5.5% above last year and 21.5% above the ten year average.

Consumption in September, as measured by gas delivered to consumers, was 1.621 Tcf, which was 9.8% higher than last year and 17.1% above the ten year average.  YTD consumption of 17.17 Tcf was 4.1% above last year and 9.5% above the ten year average.

Freeport McMoRan the New BHP Billiton?

Today, Freeport McMoRan Copper and Gold (FCX) announced that it has agreed to purchase both Plains Exploration and Production (PXP) and McMoRan Exploration (MMR).  While FCX and MMR have similar lineage and some crossover management, they are separate companies.  Plains is a big player in the Haynesville Shale by virtue of its joint venture with Chesapeake Energy.  While the team has scaled back its drilling activities this year, it is the biggest producer in the play.

I'm not entirely sure of the benefits of the deal to FCX other than the belief that oil and gas is going to be a good business going forward.  (It's also a bit of a save for MMR, which has been having trouble bringing on its marquee ultradeep Davy Jones well in the Gulf of Mexico.)  I can't help but thinking that this deal puts FCX in the same ballpark as BHP Billiton, which combines energy with mining and related businesses.

Tuesday, December 4, 2012

NAT GAS Act Redux (and the Devil's Advocate)

It looks like the NAT GAS Act will get a second chance this coming year.  At the Natural Gas and Trucking Summit in Arlington, VA last week, U.S. Representatives Lee Terry (R-NE) and John Sullivan (R-OK) announced that they would reintroduce a version of the NAT GAS Act that was originally put forward by T. Boone Pickens aimed at increasing the adoption of natural gas as a fuel for trucks.

While I support the concept of the bill, I don't expect a different outcome this time around (the House and Senate bills died in committee in 2011).  Maybe I'm getting old or tired of the 24 hour news cycle, but news of the new NAT GAS bill makes me want to put on my devil's advocate hat for a few minutes.

The argument favoring natural gas for trucks is an economic one first and environmental second.  Natural gas is cheaper than diesel fuel and companies can hedge future prices of natural gas to help keep costs predictable.  Natgas is also cleaner to burn - especially important in states where air quality is legislated - and easier on engines.  On the negative side, natgas trucks cost more than diesel trucks and reduce some operational flexibility, especially for long-haul vehicles.  But ultimately it's a business decision, and it looks like a win-win investment to me.

So why do I have to pay for it?

We now live in a climate of where corporations expect extra incentives (I won't say "handouts") to be coaxed to make certain decisions.  A federal subsidy to convert existing vehicles to natgas or to purchase new ones would accelerate the payback period and make it a sweet deal.  But why should we, the American citizens, have to grease the skids for companies to make a good business decision?

Sasol Lake Charles GTL a Go

Sasol, Ltd. announced yesterday that it will go forward with its proposed gas-to-liquids plant near its existing facilities in Lake Charles, LA (link to news releaselink to project web site).  Sasol will now commence engineering for the ethane cracker project, which is expected to cost between $16 and $21 billion and commence construction in 2014.  It should be operational by 2017.

The project, which will be one of the biggest construction industrial projects in the country, is a big win for the state of Louisiana.  It will provide an economic boost during the construction and create hundreds of permanent jobs.  Additionally, it will be a great customer for Haynesville Shale gas.

From the time the feasibility study was announced last year, selecting this site seemed like a natural decision for Sasol, which has been a leader in GTL technology.  With a large available site next to its existing facility in Westlake and close proximity to plentiful gas from the Haynesville Shale, the project seemed like a given.  But that won't stop Gov. Jindal from placing it at the top of his 2016 presidential resume and taking a fundraising victory lap across the country.  Godspeed Bobby, godspeed.

Sunday, December 2, 2012

The State of International Shale Drilling

The front page of Monday's Wall Street Journal features a great article on why it will take at least a decade to achieve the "shale boom" outside of North America.  The bottom line is that the industry infrastructure, private land ownership and governmental support of private enterprise, among other factors, have held back the realization of shale oil and gas resources in Europe and Asia.

Each country has its own issues, but the bottom line is that we are probably a decade from seeing any real development of shale oil and gas outside North America.  This is good news for the U.S. for a number of reasons.  First, cheap gas creates a competitive advantage for petrochemical and industrial producers that are expanding on our shores.  Many of these companies now are coming home after chasing cheap gas in other nations.  Second, the price differential between North America and what big consumers elsewhere in the world have to pay will support an LNG export market - assuming the federal government gets behind it - for at least a decade.

While I am fond of shale gas, I'm rather pleased that the boom won't be as rapid elsewhere in the world.  The golden goose has overproduced in North America and it will take a while to re-balance the ship.

Haynesville Shale Rig Count: Unchanged at 18

The total Haynesville Shale rig count was unchanged this week, but Texas saw the loss of a rig, while Louisiana saw an addition of one.  A new rig?  Before we get too excited, it was just a Petrohawk rig that fell of the list last week that reappeared this week.  Petrohawk has maintained four rigs in the play since early August.  In Texas there is one fewer XTO rig.