Energy Update from the Sunshine State

While working from Fox’s Miami office this week, I thought I would give you an energy update from the Sunshine State.

As I previously mentioned in a post I wrote while I was working from Fox’s Los Angeles office, which can be found here, it is easy to be isolated in the Rocky Mountain region and to keep our focus on the energy sector in our neighboring states. But, it is important to remember that many other states impact the energy industry of the country as a whole, and each state has very different issues that come into play.

While Florida is known for its citrus, warm weather and tourism industry, lets take a snapshot of the energy sector in the Sunshine State:

  1. Energy Consumption is a Big Ticket Item in this State.

            According to the U.S. Energy Information Administration (“EIA”) Florida State Profile and Energy Estimate, which can be found here, Florida “consumes substantially more energy than it produces.”  Therefore, consumption is a uniquely important issue for Florida.  According to the EIA, “the transportation sector leads state energy demand” and due to Florida’s large population base, it is “one of the five largest energy-consuming states, but its per capita energy consumption ranks among the five lowest states.”  Consumption is a bigger concern for Florida than it is for other, lesser populated states.

  1. Pipeline Infrastructure is a Crucial Piece.

            According to the EIA, “Florida receives nearly all of its natural gas from the Gulf Coast region via two major interstate pipelines: the Florida Gas Transmission pipeline, which runs from Texas through the Florida panhandle to Miami, and the Gulfstream pipeline, an underwater link from Mississippi and Alabama to central Florida.”

Bottom line – natural gas keeps the air conditioners on in this state and the pipeline infrastructure is a critical piece of the pie for Florida.

  1. Historic Crude Oil Production Peaked in the Mid-1970s.

            The Florida Department of Environmental Protection provides a spreadsheet of Florida’s Crude Oil Production since 1970 Annual Production History on its website, which can be found here. It is interesting to take a look back on a state’s historic production to get an idea of where it has been – and the spreadsheet reflects a statewide peak in oil production in the mid-1970s with production dropping in the late 1970s and remaining on the low side through 2010 (which is the last date reflected on the spreadsheet).  This is obviously very different than crude oil production in the Rocky Mountain states over recent years.

  1. Renewables are Not Currently that Big in the Sunshine State.

            Most of the Sunshine State’s renewable electricity comes from biomass, according to the EIA, but solar does also reportedly play a role. According to the EIA’s Quick Facts, which can be found here, “[r]enewable energy accounted for 2.3% of Florida’s total net electricity generation in 2015.”

It is clear that Florida’s energy-related issues vary from considerations that are crucial to Colorado and other Rocky Mountain states.

 

Spring Takeaways

Spring is in the air here in Denver! Many of us have spring fever and have been looking forward to blooming flowers, sunshine and warm weather.

So you may be curious what is about to bloom in the energy sector… Earlier this week, the US. Energy Information Administration (“EIA”) released its March 2017 Drilling Productivity Report for key tight oil and shale gas regions. A full copy of the report can be found here.

What is the EIA’s Drilling Productivity Report?

According to the EIA, this report provides estimated changes in oil and natural gas production for seven key regions (Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica) based upon recent data concerning (1) the total number of operating drilling rigs, (2) estimates of drilling productivity and (3) estimated changes in production from existing wells.

These seven regions are said to be the “most prolific” and to have “accounted for 92% of domestic oil production growth and all domestic natural gas production growth during 2011-2014.”

What are the 3 Key Takeaways from the March 2017 Drilling Productivity Report as we head into spring?

  1. Oil production is expected to decrease in the Bakken as of April 2017, while it is expected to increase slightly in the Eagle Ford, Marcellus, Niobrara and Permian for that same time period.
  2. Drilled but uncompleted wells (“DUCs”) increased in the Bakken, Eagle Ford, Haynesville and the Permian from January to February 2017 – with the Permian leading the increase with 95 new DUCs.
  3. New-well oil production is expected to increase the most in the Utica from March to April 2017, while new-well gas production is expected to increase the most in the Marcellus during that same time period. The Bakken is expected to come in second place for new-well oil production, while the Niobrara region is expected to come in second place for new-well gas production.

Stay tuned for what else is blooming in the energy industry!  Hello Spring!

 

Director's Cut

Yesterday, Lynn Helms, Director of Mineral Resources for the North Dakota Industrial Commission, Department of Mineral Resources (“NDIC”), issued his monthly Director’s Cut newsletter. The full Director’s Cut can be found here.

To me, reading the monthly Director’s Cut is like sitting down to coffee with Lynn Helms and picking his brain – its like having a conversation with the man in the know in North Dakota. I wish every oil producing Rocky Mountain state put one of these newsletters out every month…

So what are the takeaways from the March Director’s Cut?  Here’s the skinny on North Dakota:

  • Oil Production

January 2017 oil production was up from December 2016: Up roughly 38,000 barrels/day

  • Gas Production

January 2017 gas production was up from December 2016: Up over 550,000 MCF

  • Permitting

Drilling permits spiked from 35 in December 2016 to reportedly 81 in January and 45 in February

  • Rig Count

Holding pretty steady – reportedly 40 in December 2016, 38 in January 2017 and 39 in February 2017

BUT THERE’S MORE…the rig count as of the issuance of the March Director’s Cut on March 8, 2017 was up to 44

The comments to the Director’s Cut state that, “Operators are shifting from running the minimum number of rigs to incremental increases throughout 2017, as long as oil prices remain between $50/barrel and $60/barrel WTI.”

In addition, the comments state that:

  • “The number of well completions decreased significantly from 84 (final) in December to 54 (preliminary) in January.”
  • “Low oil price associated with lifting of sanctions on Iran, a weak world economy, and capital movement to the Permian basin continued to depress drilling rig count.”

And that is the skinny on the March Director’s Cut!

 

Neighboring States

Wyoming and Colorado appear to be recovering from the downturn in the oil and gas industry at different paces.

  • 307 (Wyoming)

Yesterday, the Casper Star Tribune featured an article discussing the “slugglish” and “flat” Wyoming economy entitled, “Wyoming Economy has been ‘Bouncing Along the Bottom’ Since the Summer.” According to the Casper Star Tribune, “[a] Wyoming Insight report released by the state’s Economic Analysis Division in February showed a slight improvement in both energy prices and the statewide rig count, but the economy is still far from recovered.”

Wyoming’s unemployment rate is reportedly “roughly equal” to the nationwide average and “Wyoming is down nearly 8,000 jobs since 2015.” According to the Casper Star Tribune, folks are hopeful that the oil and gas sector will bounce back to help energize the state’s economy, but there is some skepticism as to how long that could take to happen.

  • 303 (Colorado)

Wyoming’s neighbor to the south, Colorado, appears to be recovering from the downturn in the energy sector a little faster than the Cowboy State. This morning, the Denver Business Journal (“DBJ”) featured an article discussing that the energy downturn is over for the state, due in part to increased activity and oil and gas company’s budgets being up, entitled, “Colorado Oil and Gas: Up from the Bust.”

The DBJ article reports that “[a]ctivity in Colorado’s oil and gas fields also is picking up,” and noting the increase in drilling rigs working in Colorado. In addition, the DBJ article reports that “[t]he 2017 budgets for some of the state’s biggest oil and gas companies also are increasing compared to last year.”

The Colorado unemployment rate is also reportedly lower than the national rate – Colorado’s unemployment rate was 3.0% in December of 2016 while the national unemployment rate was 4.7%.

The Rocky Mountain region plays a crucial role in domestic oil production and the energy sector similarly plays a critical role in the economies of Wyoming and Colorado.  One thing is certainly true, both states are in this together and I am confident that this is recovery is something Wyomingites and Coloradans are collectively rooting for.

Only time will tell how the recovery in the oil and gas industry is going to work out…stay tuned!

 

 

Is the Bakken Fixin' to End

Earlier this week, Forbes published an article entitled, “The Beginning of the End for the Bakken Shale Play,” that likely caused many hearts to sink. In fact, I started writing this blog discussing the article yesterday and I didn’t have the stomach to finish it until this morning…

What is the article’s main prediction?

Basically that the heyday in the Bakken is over…that the decline in the Bakken has signaled “the beginning of the end for the Bakken Shale play.”

It is worth noting that the author of the Forbes article is Art Berman, a petroleum geologist with nearly 40 years of oil and gas experience – his full bio can be found here and additional information about him can be found here.

So is the Bakken fixin’ to end?

Things are not looking great for the Bakken according to the Forbes article, which reports that “[t]he decline in Bakken oil production that started in January 2015 is probably not reversible.”  The article also includes numerous charts and graphs to visually explain its proposition that the Bakken’s heyday is over.

What does the article base this conclusion on?

Here are the following factors that the article cites as the evidence that the Bakken production decline is probably not reversible:

  1. Poorer well performance: New well performance has reportedly deteriorated and estimated ultimate recovery (“EUR”) has reportedly decreased over time for most operators. According to the article, “[t]his suggests that well performance has deteriorated despite improvements in technology and efficiency;”
  2. Less oil: Gas-oil ratios have reportedly increased;
  3. Higher water: Water cuts are reportedly rising; and
  4. Increased efficiencies in drilling technology reportedly increasing depletion.

What is probably most troubling in the article is its conclusion that “[a]vailable evidence suggests that current well density is sufficient to fully drain reservoir volumes.”

In layman’s terms – no new wells are necessary.

According to the article, “[t]hat implies that further drilling will not result in producing new oil volumes but will interfere with and cannibalize production from existing wells.”

A local North Dakota news source addressed the Forbes article this morning by running an article entitled, “Bakken Dispute: What will the Future Hold?” which points out that the Forbes article did not consider the effects of the harsh North Dakota winter when predicting future oil production.

The article concludes that “[i]f observations presented here hold up, there may be nowhere for the Bakken to go but down.”

It is likely that this will be an area that is hotly contested in future months – only time will tell if the heyday in the Bakken is truly over…

To not end the week on a bad note, I am glad to report that as I finished writing this blog this morning, oil prices are up – according to Bloomberg Energy, WTI Crude Oil is at $53.10 per barrel and Brent Crude is at $55.62 per barrel.

Melissa's Skis

The U.S. Energy Information Administration (“EIA”) released its Natural Gas Monthly (“NGM”) update today based upon December 2016 data – the full report can be found here.

According to an Oil & Gas 360 article published today entitled, “December Natural Gas Consumption Second Highest in 15 years: EIA,” the NGM outlines both U.S. natural gas production and consumption for the month of December 2016.

The takeaway point is simple: December was a cold month – so natural gas consumption was way up!

As I look out the window to snow falling this afternoon in Denver, I am reminded that Denver seems to have had a pretty mild winter (so far, anyways), but other parts of the U.S., my home state of Wyoming included, have had some very cold weather this winter.

According the Oil & Gas 360 article, “Consumption was the second highest in December in the last 15 years, up 10.6% from levels in December 2015.”

The Oil & Gas 360 article also reports that:

  • Residential deliveries in December 2016 were up almost 35% from last year
  • Commercial power deliveries are also up more than 30% from last year

This is interesting because November 2016 natural gas consumption was reportedly “down to the lowest level since 2011.”

As you can see from how much natural gas consumption has increased – Baby, it’s been cold outside…

 

 

Oscars Snafu

It seems like we are experiencing a lot of “firsts” lately. Last night and this morning were no exception…

Last night, we all watched the best picture snafu at the Oscars, where the presenters were given the wrong envelope and Faye Dunaway announced the wrong best picture winner by mistake, naming La La Land instead of Moonlight – Watch the wrong best picture announcement here.

It was quite a snafu, and definitely a first!

Then this morning, another first happened…or at least something that I cannot remember happening for a very long time. I woke up to reports of oil prices “bouncing”

As I write this, WTI Crude Oil is at $54.22 per barrel (up .43%) and Brent Crude is at $56.17 per barrel (up .32%), according to Bloomberg Energy.  Granted, to me it seems like just a little bounce – but a bounce is a bounce, regardless.

According to CNBC Energy, “Oil Prices Bounce as Bullish Bets on Rising Prices Hit Record High,” compliance with the OPEC production deal and the increasing rig count are directly correlated to the price bounce.

Reuters article entitled, “Oil edges up as bullish bets on rising prices hit record high,” agreed with the causes of the increase in prices and also cites investors showing confidence that prices would rise further as a potential cause.

What other “firsts” are in store for us this week? Only time will tell…

energy industry takeaways Q1 2017As we are about midway through the first quarter of 2017, we wanted to provide you with the takeaways from the energy industry so far this year:

Baker Hughes Rig Count

According to Baker Hughes’ announcement of the rig count for January 2017 – rig counts are up:

  • The international rig count for January 2017 was 933, up 4 from the 929 counted in December 2016, and down 112 from the 1,045 counted in January 2016.
  • The average U.S. rig count for January 2017 was 683, up 49 from the 634 counted in December 2016, and up 29 from the 654 counted in January 2016.

Oil Prices – Increased due to OPEC Production Cuts

According to CNN Money’s article entitled, “Oil Prices have Doubled in a Year. Here’s Why,” “the market has mounted a stunning turnaround, with crude prices doubling to trade at $53.50 per barrel.”

The cause? Compliance with OPEC production cuts is credited as a BIG factor.

According to Nasdaq article from Investing.com entitled, “OPEC Compliance on Production Cuts at 93%, oil pares losses”:

  • Recently, an OPEC monthly report showed a registered 93% compliance in their agreement to reduce production.
  • The report (citing secondary sources) revealed that oil production decreased by 890,200 barrels per day to average 32.14 million barrels per day.

Current Oil Prices Are Actually Down a Bit

As I write this post, according to Bloomberg Energy, prices are down a little bit:

  • WTI Crude Oil Price: $52.82
  • Brent Crude Oil Price: $55.50

In fact, Yahoo Finance reports in its article entitled, “Oil Prices Head Lower In Spite of Bullish OPEC Data,” that “oil is charging lower to start the week.”

How do industry folks feel so far this year?

In my view, people in the industry remain optimistic as to the future of the energy industry. Some are skeptical as to whether oil prices will hold as the domestic rig count increases and as more wells that had been previously drilled but not completed have production that comes online.  Many seem to feel calmer than they did this time last year.  Overall though, industry people have recognized how technologies have refined and how operations have become more efficient in recent years and they are looking forward to the future of the oil and gas industry.

LaramieAs the 64th General Session of the Wyoming Legislature is in full swing, a hot topic is the current state of the budget.  I spent the weekend up in Laramie – and it was also a topic of discussion in the community there.

There is good news to help bring some money into my home state – The first Bureau of Land Management (“BLM”) oil and gas lease sale of 2017 occurred last week and it has helped to provide some cash for revenue-dry Wyoming.

According to the Casper Star Tribune article from last week, “Land Sale Sparks Industry Enthusiasm in Wyoming,” the BLM held a successful oil and gas lease sale last Tuesday for 285 parcels of land. Specifically, last week’s oil and gas lease sale reportedly raised $129.3 million.

Of the $129.3 million sales price, Wyoming reportedly makes a whooping $63 million.

Wyoming is scheduled to hold three (3) more lease sales this year (on a quarterly basis) and these upcoming sales will reportedly no longer be held in person, but will now go forward online.

This brings up another topic that is on the forefront of discussion in my home state – diversifying Wyoming’s economy to help it better weather the boom and bust cycles that have historically haunted the energy industry.

According to an excellent article summarizing the cyclical nature of the economy in Wyoming featured earlier this month in the Casper Star Tribune, “[t]he downturn in the state’s fossil fuel industries meant the near-evaporation of 70 percent of the state’s revenue stream.”

To that end, a bill authorizing Governor Mead’s “ENDOW” program, which stands for “Economically Needed Diversity Options for Wyoming,” is currently moving through the Wyoming Legislative session.  According to the Casper Star Tribune, “ENDOW is an effort being pushed by Mead that would create a 20-year blueprint to diversify the state’s economy.”

The full text of the ENDOW engrossed version, SF00132, can be found here.

According to Governor Mead’s website, “[t]he goals [of ENDOW] are to encourage the expansion and diversification of Wyoming’s existing energy and industrial sectors, stimulate new and emerging industries, create private sector jobs and encourage business development, entrepreneurship and innovation.”

ENDOW is reportedly seeking to provide a long-term vision for Wyoming through assessing the state’s economic situation to make recommendations on how to go forward toward a more diverse economy.  A final, 20-year “comprehensive economic diversification strategy” is said to be due under the initiative by Aug. 1, 2018.

According to the Casper Star Tribune, “[t]he report would include goals for the state to reach and a plan to “guide the evolution of Wyoming’s economy in order to build a sustainable and diversified, value-added economy by 2038.”

If you are interested, you can do your part – Governor Mead is asking the public to complete an online survey about ENDOW, including nominations for people to serve on the executive council. The survey can be found on the governor’s website at http://governor.wyo.gov.

The good news is that the state will receive the much needed capital from the BLM lease sale while it is studying and planning on how to diversify the state’s economy.

Energy Update from Sunny California

Working from Fox’s sunny California office this week has reminded me of the state’s place in the energy industry, so I thought I would give you an energy update about the state while I am here.

I recently saw an old photograph of Huntington Beach from the early 1900’s that at first glance, I thought was a photograph of Spindletop. The beach was more crowded with oil wells than it was with sun-bathers. It was astounding…

In fact, California’s role in the energy sector started much earlier than that. According to history.com’s article on the oil industry, early explorers of America encountered oil slicks off the coast of California as early as the 16th century.

It is easy to be isolated in the Rocky Mountain region and to keep our focus on the energy sector in our neighboring states. But, while it may not be on the forefront of our minds, we cannot forget the crucial role, not to mention the historically important role, that many other states play to the energy industry of the country as a whole.

Let’s quickly highlight the energy sector in this sunny state, nicknamed “The Golden State.”

Highlighting energy in California – what’s the scoop?

According to the U.S. Energy Information Administration’s (“EIA”) California state profile and energy estimate:

  • California is the most populated state in the nation, and with the largest economy, its total energy demand is second only to Texas.
  • The state has an abundant supply of crude oil and is a top producer of conventional hydroelectric power.
  • Even though California’s crude oil production has declined overall in the past 30 years, it remains one of the top producers of crude oil in the nation.
  • In fact, California accounted for about 6% of total U.S. production in 2015.

Some may forget that California is also a refining-giant. According to the EIA:

  • California ranks third in the nation in petroleum refining capacity and accounts for more than one-tenth of the total U.S. capacity.

What people are talking about in the state: Water

  • The focus of many people in California is the end of the recent drought in Northern California. But it is not over for the whole state…some areas are still a little dry.
  • The LA Times recently featured an article that discusses this in depth – recent storms have pulled nearly all of northern California out of drought conditions, but drought is still an issue for folks in the southern and central parts of the state.
  • Storms reportedly dramatically boosted the Sierra Nevada snowpack — a key source of water for California — to 161% of normal and helped rectify the state’s water shortage.

The Importance of Relationship Between Water and Energy for California

Water and energy resources have been described as “inextricably entwined” in the state of California, according to the California Energy Commission (“CEC”), “Drought Impacts California’s Energy.” Hydroelectricity is obviously significantly impacted by drought. According to the CEC, “[w]ith less water available to generate hydroelectricity, natural gas and renewable energy supplies may be used to make up the difference.”

Takeaway – although we may be focused on the Rocky Mountain region and the energy sector in our area, we cannot forget the critical role and issues in other states. The Golden State is one of those states…