America

For the first time in almost seven months, America’s shale drillers put rigs in oil fields back to work, and they’re doing it at a lower price.

The last time they added rigs, crude futures were trading near $70/bbl. Now, even after a rebound, they’re under $60. And yet drilling rigs rose in almost every major U.S. oil basin in the country this week, raising the total by 12, according to field-services company Baker Hughes Inc.

The sudden rebound is a testament to how resilient U.S. shale has become in the battle for global market share. Spurred by last year’s collapse in prices, shale explorers have brought down their break-even costs by $15 to $20/bbl, a Bloomberg New Energy Finance analysis shows.

“As much as anything else, the rise this week is a testament to break-evens coming down just over the course of this year,” James Williams, President of energy consultancy WTRG Economics, said by phone from London, Arkansas, on Friday. “Shale is a lot more resilient than we thought it was, and it means we’re going to be able to keep producing shale oil at a lower cost than we thought we could.”

While U.S. benchmark West Texas Intermediate oil has gained 6.8% this year, it’s still down 46% from a year earlier. Futures for August delivery slipped after Friday’s rig report, settling at $56.93/bbl on the New York Mercantile Exchange after reaching $57.95 in intraday trading.

Cheaper Services

The costs of various drilling services have fallen by 20% to 50% in the U.S., Charles Blanchard, a BNEF analyst in New York, said by phone Wednesday.

The break-evens in plays including parts of Texas’s
Permian basin and Eagle Ford shale formation and the South Central Oklahoma Oil Province, known as SCOOP, are below $40/bbl.

Producers are getting the most relief on items that are specific to the oil world, such as frack sand and rental rates on drilling rigs and pressure pumps, said Scott Mitchell, Director of upstream research for Wood Mackenzie Ltd. in Houston.

U.S. oil explorers are homing in on their most productive areas and renegotiating drilling costs as they face increasing competition from the Organization of Petroleum Exporting Countries. The 12-nation group, which accounts for more than a third of the world’s crude supply, has resisted calls to curb its own output and instead pumped the most last month since August 2012, based on a Bloomberg survey.

“If you have core acreage in places like the Permian or the Eagle Ford, you can keep producing a lot,” Blanchard said.

Producers could add about 100 oil rigs by the end of the year, Mitchell said. As activity increases, the cost declines may come to an end.

“Drilling rigs and fracking require a quite specific technical workforce, and there were a lot of layoffs as a result of the drop in activity,” Mitchell said by phone. “We may find the supply of people becomes short very quickly if activity ramps up, leading to price increases again.”

Packers Plus and a subsidiary of Acacia Research Corporation have announced their collaboration on the licensing of a set of fundamental patents related to multi-zonal completion of horizontal wells, including ball-drop, sliding sleeve and packer technology for use in the hydraulic fracturing of both tight and conventional oil and gas reservoirs.

This technology has been applied in oilfields across North America and worldwide and has contributed significantly to the tremendous growth in oil and gas production from unconventional shale formations.

Dan Themig, president and CEO at Packers Plus, said, "We are pleased to be working with Acacia as our licensing partner for these patents because of their proven expertise and success in obtaining fair value for the use of intellectual property. This transaction enables us to further unlock the investment and the value from our R&D while focusing our internal resources and investments in developing and delivering world class completion technologies to the market,"Acacia is delighted to be partnering with Packers Plus, whose revolutionary products have attracted widespread adoption across the industry," commented Matthew Vella, Acacia CEO and President. "We continue to grow our business in the Energy sector as highlighted by this collaboration and we look forward to seeing our recent acquisitions grow our base of future revenues."

Pennsylvania's Department of Environmental Protection (DEP) has announced the draft final revisions to the Environmental Protection Performance Standards at Oil and Gas Well Sites rulemaking.

This revision continues DEP’s commitment to modernizing and strengthening the environmental controls employed by both the conventional and unconventional industries to assure the protection of public health, safety, and the environment.

“Responsible energy development in Pennsylvania is key to the commonwealth’s future,” said DEP Secretary John Quigley. “We are committed to protecting our natural resources, and these rules strengthen safeguards for our water and environment.”

“These rules are the culmination of one of the largest public participation efforts the department has ever seen, with nearly 30,000 comments and 12 public hearings during two public comment periods,” said Quigley.

The amendments to the oil and gas regulations began in 2011 to address surface activities at well sites, and center on five core areas. The amendments:

• Improve protection of water resources
• Add public resources considerations
• Protect public health and safety
• Address landowner concerns
• Enhance transparency and improve data management

“We asked the people of Pennsylvania for their concerns about developing oil and gas resources in the commonwealth, and they answered,” said Quigley. “These amendments reflect a balance between meeting the needs of the industry and the needs of public health and the environment; all while enabling drilling to proceed.”

After the latest round of public comment, two significant changes were made. DEP decided not to include the provisions for noise mitigation and centralized storage tanks for wastewater in the final regulations. Because of the complex nature of noise mitigation, it was determined that a separate process is more appropriate to address those concerns. In terms of centralized storage tanks, the department decided to remove this provision because these facilities will continue to be regulated under the residual waste regulations.

In addition, changes were made in this latest draft to address comments received and add clarity.

The amendments will be discussed at the upcoming meetings of the Conventional Oil and Gas Advisory Committee (COGAC) and, Oil and Gas Technical Advisory Board (TAB) in late August and early September, respectively. DEP will be working with these advisory committees to ensure the amendments are technically sound.

A funding squeeze threatens to cut U.S. oil output by as much as half a million barrels a day by the end of the year, with shale producers among the worst affected, Citigroup Inc. said.

“Capital markets thus far have plugged shale’s funding gap but are showing signs of tightening, with impacts for drilling, oil supply and global prices,” Richard Morse and Ed Morse, analysts at Citigroup in New York, said in a note. Access to high-yield credit markets for debt-strapped producers is “sharply contracting,” they said.

High-cost oil producers in the U.S. have been forced to scale back in the past year after members of the Organization of Petroleum Exporting Countries decided to maintain output to defend their market position. U.S. crude prices have dropped almost 40% since OPEC announced its policy change in November to trade at about $45/bbl Wednesday.

“The U.S. could lose up to 500,000 bpd of output by year-end, half from shale,” Citigroup said in the note dated Tuesday. That loss almost matches Ecuador’s daily production, which was about 536,000 bpd last month. Ecuador is the 11th-biggest producer in OPEC, whose 12 members supply about 40% of the world’s oil.

Cuts to reserve-based lending, which allows companies to secure loans with undeveloped oil resources, will remove an important source of liquidity, according to the bank. Weaker producers may face bankruptcy, while those with “high-quality” assets should be more resilient, it said.

The number of oil rigs in the U.S. has shrunk by almost 60% since reaching a record-high last October, Baker Hughes Inc. data show. Production in the country fell for a fourth week on Aug. 28, the longest declining streak since January 2012, according to the Department of Energy.

OPEC is assuming the oil price will rise gradually to $80/bbl in 2020 as supply growth outside the group weakens, a slower recovery than several member nations have said they need.

The average selling price of the Organization of Petroleum Exporting Countries’ crude will increase by about $5 annually to 2020 from $55 this year, according to an internal research report from the group seen by Bloomberg News. Iran and Venezuela said they would like to see a price of at least $70 this month and most member countries cannot balance their budgets at current prices.

“It’s much harder for OPEC to lift prices” after the revolution of U.S. shale oil, said Bjarne Schieldrop, Oslo-based chief commodities analyst at SEB AB, which forecasts Brent crude at $73 by the end of the decade. “Eighty dollars by 2020 is pretty close to consensus view.”

The price of crude has tumbled more than 50% in the past year as OPEC followed Saudi Arabia’s strategy of defending its share of the global market against competitors like U.S. shale oil. While both OPEC and the International Energy Agency expect growth in global supply to slow as low prices bite, Goldman Sachs Group Inc. predicts that a persistent glut will keep crude low for the next 15 years.

Production from nations outside OPEC will be 58.2 MMbopd in 2017, 1 million lower than previously forecast, according to the internal report. The impact of low prices is “most apparent on tight oil, which is more price reactive than other liquids sources,” according to the report. “Supply reductions in U.S. and Canada from 2014 to 2016 are clearly revealed.”

OPEC expects little stimulus to global demand in the medium term as a result of cheaper oil, with daily consumption growing by about 1 million barrels a year to 97.4 million in 2020, according to the report. While demand from China, Russia and OPEC members will grow more slowly than forecast a year ago, developing nations with still account for the bulk the expansion, it said.

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