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The Oil And Gas Situation

01/30/2018 9:07 AM | Anonymous member (Administrator)

As the first month of 2018 comes to a close, the situation for the U.S. oil and gas industry remains highly positive. Several current news stories help to paint this rosy picture.


First, the U.S. rig count remains remarkably stable. 

Wait, didn't we just see headlines that the Baker Hughes weekly rig count jumped by 11 last week? Well, yeah, but that came after a pretty flat month overall. And when you look at the current DrillingInfo daily rig count, you see that measure of drilling activity in the U.S. is essentially flat since mid-December.  (Do you know that NARO Texas members get a FREE one yr, one county subscription to DrillingInfo??)


So what does that tell us? Well, if we look at nothing but the number and how it goes up or down on a weekly or daily basis, not much. But if we look at it as a measure of industry activity over time — like the last six weeks, in the case of the DrillingInfo count — it tells us that the industry is not to this point engaging in the self-destructive rush to increase drilling that we saw at the start of 2017. Remember, that rush to drill resulted in dumping the price for WTI by about $10/bbl by April of last year.


This stability — unanticipated by most energy experts — appears to be holding true even as the price for WTI has climbed over $65/bbl, a level at which most forecasters would have anticipated another rush to drill. So what's up with that?


The big independent producers are focused on capital discipline.

It's important to remember that more than 70% of U.S. shale oil and natural gas wells are drilled by a relative handful of large, independent producers. In a really good piece published at Platt's late last week, CEOs at several of those companies talked about their plans for 2018. The headline of the piece — "North American E&Ps to Focus on Capital Discipline" — basically tells the story.


These companies do plan to increase their overall production during 2018, but in a change from 2017, when they achieved that goal mainly by activating hundreds of additional drilling rigs, they plan to meet their goals this year through the utilization of improved completion and fracking technologies. Note that the other, equally important main goal for these companies this year is to increase returns to shareholders and investors.

"Many operators, led by Anadarko Petroleum (APC), have already begun to take action to return cash to shareholders, sell non-core assets to shore up balance sheets or announce growth programs that are limited to internally generated cash flows," notes Gordon Douthat, a senior adviser at Wells Fargo. Indeed, we see exactly this sort of capital allocation taking place across the large E&P sector.


Given this information, no one should be surprised at all by the relatively static rig count through January — that's actually the plan, as these companies have goals of growing overall production through maximizing recoveries from each well drilled rather than through drilling more and more wells.


"Oil Boom Gives the U.S. a New Edge in Energy and Diplomacy"

Ordinarly, we would expect to see a headline such as this in an industry trade publication or attached to a position paper put out by the Trump administration. But guess what? That's actually the headline attached to a Jan. 28 story run by ... wait for it ... The New York Times. No kidding.

The piece itself, authored by Clifford Krauss, essentially points out the reality that the Trump plan for U.S. energy dominance is proceeding apace, although without actually giving the Trump policies any overt credit for making it happen. Here's a key passage from the piece:


The results go far beyond the economic, offering Washington strategic weapons once unthinkable. The United States and its allies now have a supply cushion at a time when political turmoil in Venezuela, Libya and Nigeria is threatening to interrupt flows to markets.


Only a few years ago, such threats — along with a recent pipeline failure in the North Sea and storms in the Gulf of Mexico — would have sent the price of crude soaring. Instead, the rise has been muted, and gasoline at the pump remains below $2.60 a gallon across most of the United States.

The new energy power also relieves pressure on Washington to act militarily if tensions between Iran and Saudi Arabia break out into war. And it gives Washington the leeway to apply sanctions on other producers — as it has in Russia, and may in Iran or Venezuela — with far less risk to the global economy.


Now, compare that with how I summed up the Trump plan for U.S. energy dominance when it was articulated by the administration last summer:

When President Trump talks about his goal of Energy Dominance, he’s referring to a plan that envisions implementing policies that encourage four major elements:

• Taking full advantage of America’s amazing abundance of oil, natural gas and coal;

• Increasing exports of all three of those fossil fuels and their related products;

• Relying more on imports of oil from Canada, Mexico and other Western Hemisphere nations, and less on imports from the Middle East and North Africa; and

• Leveraging all of those three elements to enhance U.S. bargaining positions in its foreign policy initiatives.


Now, we can argue all day long about whether or not America's new position of international strength has anything to do with the policy choices implemented thus far by the current administration, but it's pretty obvious that they haven't hurt. Domestic production is up, exports are up, reliance on Western Hemisphere imports is up, and the result, as The New York Times notes, is a suddenly enhanced bargaining posture for the United States.


Regardless of who gets the credit, what it all amounts to is a pretty rosy current situation for the domestic oil and gas industry. How long this will last is anyone's guess, but it sure is a welcome change from the previous three years.


https://www.forbes.com/sites/davidblackmon/2018/01/29/the-oil-and-gas-situation-trumps-american-energy-dominance-agenda-becoming-realty/#6ada3bf6676b


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