October 21, 2016 —ENERGY UPDATE
The price of oil has rallied about 90 percent since bottoming out earlier this year in the upper $20s but remains well below the 2014 highs that escalated well above $100 a barrel.
At a major industry conference in London this week, the view was that oil is preparing to settle into a $50-$60 a barrel range. BP chief executive Bob Dudley picked that band when asked where he saw oil trading in 2017.
Oil majors such as BP and ExxonMobil have slashed costs and investments in the past two years, but will still face a severe test in covering capital spending and dividends from cash flows with oil loitering not much above $50 a barrel.
As oil has rallied, natural gas futures are up about 29 percent year to date. Last week, natural gas futures struck a high going back to December 2014 of $3.36 per million British thermal units.
West Texas Intermediate (WTI) crude oil for December delivery traded up Friday to settle at $50.85, up 50 cents from the close last Friday.
Brent Crude BZZ16, the NYMEX-traded crude benchmark, settled up 40 cents at $51.78 a barrel, down 17 cents from the close last Friday.
U.S. natural gas prices (NGX16) fell this week 30 cents from last Friday to $2.99 MMBtu today.
RIG NEWS – Long is the new deep.
Schlumberger set to capitalize on Texas growth with “rig of the future”
The chief executive of the world’s largest energy services company said Friday that two pilot projects using the “rig of the future” will roll out this year, while Kibsgaard said fully completed versions will come out in 2017. The new rigs are starting operations in West Texas this year to unleash greater depths of directional drilling and access more oil reservoirs from single locations.
Schlumberger Chief Executive Paal Kibsgaard refers to these longer horizontal laterals drilled as “super laterals.” The growth target is in Texas’ Permian Basin.
The average length of laterals has increased by hundreds of feet in this year, with an unofficial record 18,544 feet, about 3.5 miles, claimed by a well in Ohio. Denver-based SM said it expects to drill 10,000-foot laterals over most of its Texas property in the Permian.
Doubling laterals from 5,000 feet can make a well about 4.5 times more valuable. It only takes another two or three days to drill the extra 5,000 feet and with only a marginal 10 percent increase in well cost, operators are receiving as much as a 25 percent net increase in production.
RIG COUNT – US Total +14, Now at 553
A year ago, 787 rigs were active
For 21 of the last 22 weeks, US oil rig counts rose – jumping by 11 (most in 8 weeks) to 8-month highs at 443. $50 oil seems to be the magic number shale producers need to increase drilling activity.
Since this time last year, oil exploration in the U.S. is down 25 percent and gas
exploration is down 44 percent. The weekly average of crude oil spot prices is 11 percent higher than last year and natural gas spot prices are 33 percent higher.
Among major oil and gas-producing states, Texas gained 10 rigs, Wyoming increased by three, New Mexico was up two and Alaska and Utah added one apiece.
Louisiana declined by two rigs and Colorado was off by one.
Arkansas, California, Kansas, North Dakota, Ohio, Oklahoma, Pennsylvania and West Virginia were unchanged.
Oklahoma Rig Count – Flat (HZ -1 and Vertical +1)
Not much change in the rig counts across Oklahoma with Blaine, Grady, and Payne Counties picking up 1 HZ rig apiece. Blaine also gained 1 vertical rig. The biggest drop was in Canadian County with a loss of 3 HZ rigs and Ellis County lost 1.
Data gathered from the latest Baker Hughes Inc. (NYSE: BHI) North American Rotary Rig Count released on Friday, October 21, 2016.
Check out the Oklahoma Index, a compilation of data specific to statewide activity that includes an interactive and proprietary “Rig Count” dashboard.
Click here to subscribe to our Weekly Oil and Gas Industry Newsletter delivered directly to your inbox from OklahomaMinerals.com