Investors who took a hit last year when dozens of U.S. shale producers filed for bankruptcy are already making big new bets on the industry’s resurgence.In the first quarter, private equity funds raised $19.8 billion for energy ventures – nearly three times the total in the same period last year, according to financial data provider Preqin.The quickening pace of investments from private equity, along with hedge funds and investment banks, comes even as the recovery in oil prices from an 8-year low has stalled at just over $50 per barrel amid a stubborn global supply glut.The shale sector has become increasingly attractive to investors not because of rising oil prices, but rather because producers have achieved startling cost reductions – slashing up to half the cost of pumping a barrel in the past two years. Investors also believe the glut will dissipate as demand for oil steadily rises.That gives financiers confidence that they can squeeze increasing returns from shale fields – without price gains – as technology continues to cut costs. So they are backing shale-oil veterans and assembling companies that can quickly start pumping.”Shale funders look at the economics today and see a lot of projects that work in the $40 to $55 range” per barrel of oil, said Howard Newman, head of private equity fund Pine Brook Road Partners, which last month committed to invest $300 million in startup Admiral Permian Resources LLC to drill in West Texas.Data on investments by hedge funds and other nonpublic investment firms is scant, but the rush of new private equity money indicates broader enthusiasm in shale plays.”Demand for oil has been more robust than anyone imagined three years ago,” said Mark Papa, chief executive of Centennial Resource Development Inc (CDEV.O).Papa referred to the beginning of an international oil price crash in 2014, which took many firms in the shale sector to the brink of bankruptcy.
Source: Undaunted by oil bust, financiers pour billions into U.S. shale | Reuters
The 2020s could be a “decade of disorder” for the oil markets as the lack of drilling today leads to a shortfall of supply. Demand will continue to grow, year after year, and shale will not be able to keep up.It may be hard to envision today, with an oil market suffering from low prices and a glut of supply. Falling breakeven prices have drillers still churning out huge volumes of shale oil, with production in the U.S. already rebounding and rising on a weekly basis.The tidal wave of shale, however, is the direct result of extreme market tightness a decade ago, which pushed oil prices up into triple-digit territory. The rapid rise of China and other developing Asian countries in the early 2000s put the squeeze on the market, as conventional production struggled to keep up with demand. High prices sparked new shale drilling in the 2010-2014 period, which, as we now know, brought a lot of supply online. That, subsequently, led to a price meltdown.“I think that what you might take away from this historical review, is that oil is volatile. We go through periods of stability, followed by huge increases, followed by the almost inevitable downturn coming off the big spike,” The former administrator of the EIA, Adam Sieminski, said on the Platts Capitol Crude podcast on April 10. But busts in the oil market tend to sow the seeds of the next upcycle.“And we’re in that downturn kind of age now. And everybody is kind of sitting around saying ‘well, maybe shale is going to make it different. Maybe we are going to be less volatile now because shale can feed into rising demand.’ I’m thinking that the decade of the ‘20s is going to be one of difficulties,” Sieminski said. “That’s why I call it the decade of disorder. We’re not getting enough capital investment now, I don’t know that shale is going to be able to do it all.”
Source: 2020s To Be A Decade of Disorder For Oil | OilPrice.com
Posted in oil, Shale
Tagged oil, shale
Marathon Petroleum’s $15.8 billion deal to expand its rapidly-growing pipeline network highlights one of the most surprising developments in the shale era: after being written off a few years ago, refiners are printing money.
Since June 2011, when Marathon Oil spun off what some thought would be low-margin refining and pipeline units, the top four energy performers on the Standard & Poor’s 500 Index were fuel processors Tesoro Valero Energy, Marathon and Phillips 66. Tesoro more than quadrupled.
Read that again: the best energy stocks in the last four years were the assets that many thought were either doomed or not worth owning as a US energy renaissance took hold.
The producers that drove the shale revolution have suffered as crude prices fell by more than half in the worst oil crash in a generation.
Why? The main reason is that refiners have access to cheaper crude. The tremendous amount of new oil produced in shale regions is essentially landlocked, because most US exports are banned. That means refiners pay less in the US than competitors in other regions.
Another key reason is that refiners have invested billions to build, expand and update their pipelines and logistics businesses, as Marathon did Monday. Along with Marathon, Tesoro, Valero and Phillips 66 have all created or expanded their pipeline units, helping minimize the inherit volatility in the refining business.
via Refiners lead major US energy stocks in shale era | Hydrocarbon Processing | July 2015.
Here is what it costs to drill oil and gas shale wells in various states, measured in dollars per foot:
South Dakota: $315
North Dakota: $337
New Mexico: $400
West Virginia: $518
Source: American Petroleum Institute, Independent Petroleum Association of America (provided by House Speaker Mike Turzai’s office)
Even as Utica and Marcellus shale companies set records for oil and natural gas production, plummeting oil prices likely will lead some to ditch their short-term drilling plans, industry officials said Friday.”Even just a few weeks ago, it was about $80. Now, it’s under $60,” said Shawn Bennett, senior vice president of the Ohio Oil and Gas Association. “Low commodity prices are causing some companies developing in shale areas to re-evaluate their drilling plans. Some, unfortunately, are going to start laying down rigs.””I would suspect that things will slow a little in the short-term,” added Tim Carr, a geology professor at West Virginia University. “In the long-term, if it stays low, then it will hurt.”According to the Ohio Department of Natural Resources, drillers produced more than 132 billion cubic feet of natural gas from July 1 through Sept. 30, up from 88 billion during the previous three-month period – and more than the 100 billion drawn from the entire state in all of 2013. In terms of Utica oil, the numbers show Buckeye State drillers increased production by 546,000 barrels during the period from July 1-Sept. 30, compared to the April 1-June 30 time frame.
via Shale Output May Drop As Oil Prices Plunge – News, Sports, Jobs – The Intelligencer / Wheeling News-Register.
Posted in Marcellus, Shale, Shale Natural Gas, Shale oil, shale production, Utica
Tagged Marcellus, shale, Shale Natural Gas, Shale oil, shale production, Utica
The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt.Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year. Anything that becomes a mania — it ends badly,” said Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management. “And this is a mania.”The Fed’s decision to keep benchmark interest rates at record lows for six years has encouraged investors to funnel cash into speculative-grade securities to generate returns, raising concern that risks were being overlooked. A report from Moody’s Investors Service this week found that investor protections in corporate debt are at an all-time low, while average yields on junk bonds were recently lower than what investment-grade companies were paying before the credit crisis.
via The Fed Helped Cause $550 Billion Energy Debt Boom, And Now It Could End In Tears – Yahoo Finance.
Posted in Bakken, Eagle Ford, energy debt, Shale, shale breakeven, Shale Natural Gas, Shale oil, shale oil breakeven
Tagged Bakken, Eagle Ford, energy breakeven, Shale breakeven, Shale Natural Gas, Shale oil, Shale oil breakeven
Amid falling oil prices, ConocoPhillips (NYSE: COP) said Dec. 8 its capital budget for 2015 is $13.5 billion, down about 20 percent from its 2014 budget of $16.7 billion.The Houston-based company said the decrease reflects reduced spending on major projects, several of which are nearing completion, and deferred spending on North American unconventional plays. However, it expects production to grow 3 percent next year from continuing operations, excluding Libya.
via ConocoPhillips cuts capital budget amid lower oil prices – Houston Business Journal.
Posted in Bakken, Eagle Ford, Permian, Shale, Shale Natural Gas, Shale oil
Tagged Bakken, Eagle Ford, Permian, shale, Shale Natural Gas, Shale oil
London-based BP PLC (NYSE: BP) plans to reduce staff by cutting mid-level managers across the board in production, refining and in corporate offices, the company told the Times of London.The announced cuts come after continued drops in oil prices, which are currently below $70 a barrel. BP, which has about 84,000 employees, is one of Houston’s largest energy employers with about 10,000 people in the region. Some cuts are expected to take place in Houston, where the company houses its main U.S. offices. Project freezes may also take place.
via BP Plc to cut jobs in production, refining as oil prices slump below $70 – Houston Business Journal.
Oil rigs could one day join the treetops in George Washington National Forest south of the nation’s capital.Despite protests from Virginia’s Democratic governor and environmental groups, the U.S. Forest Service announced this week it would make 177,000 acres – or about 17 percent – of the forest in Virginia available for leasing for horizontal drilling and hydraulic fracturing, or fracking. The practice would be allowed on about 167,000 acres where there are existing private mineral rights – in other words, sites where people, groups or companies own whatever oil, gas and other minerals sit beneath the soil. It would also be allowed on another 10,000 acres that have already been leased to oil and gas firms.
via Fracking Approved in George Washington National Forest – US News.