Oil Price Rise Falters As Doubts Emerge Over Opec Cuts

By Jillian Ambrose, The Telegraph |

The oil market’s tentative recovery has hit a setback as niggling concerns over Opec’s plans to cut supply punctured growing market optimism.

The market enjoyed its strongest rally in six weeks on Thursday, taking the price of Brent crude to almost $56.50 a barrel, but as market jitters re-emerged the price tumbled back over $1 to $55.30.

Earlier in the week the market was emboldened by fresh data suggesting deeper than expected oil supply cuts from Saudi Arabia, one of the world’s biggest oil producers, and spurred on by a weaker dollar following president elect Donald Trump’s first press conference.

The Saudis are reported to have exceeded the level of cuts agreed in the landmark supply deal and are producing less than 10 million barrels of oil a day, which suggests a cut of 625,000 barrels rather than the agreed 500,000 barrel slowdown.

An investment note from brokerage Cenkos said: “This would suggest that Saudi is willing to wear the pain of short-term cuts over and above agreed quotas in order to absorb Libyan increases and thus preserve longer-term prices.”

Libya has been exempted from the Organisation of Petroleum Exporting Countries’ supply cuts as the battered North African nation tries to get its industry back on its feet.

But traders still harbour concerns over whether the  deal struck late last year between Opec and the world’s largest producers outside of the cartel will stick.

Saxo Bank’s Ole Hansen said the short-lived price rally had been followed by a sell-off as traders tried to make sense of a range of supply news.

“Key Opec members have cut production as promised but against this we have doubts about Iraq as well as rising production from Libya and an upgrade to US production,” he explained.

Iraq claims to have cut daily production by 160,000 barrels to reach its target of 210,000 barrels a day soon. But ship loading data from the country suggests that exports in February will be higher. In addition the Kurdish-controlled north has not shown any signs of cutting, leaving it to the government-controlled south to provide the cuts, Mr Hansen added.

Oil prices have climbed from 12-year lows of $27.50 a barrel a year ago but have struggled to reach the key $60 a barrel mark without an intervention from Opec.

The cartel’s agreement to reduce supply alongside cuts from Russia is the first of its kind agreed in 15 years and is crucial to help the market continue its tentative recovery following the two-year downturn.

A report from the cartel’s Vienna-based headquarters issued a sobering warning that without the deal, the market could face a supply overhang of 1.24m barrels of oil a day, around 300,000 more than forecast a month ago, which would snuff out the market’s hard-fought recovery.

Oil Down Four Percent On Concerns Over Rising Iraqi Exports, U.s. Output

By Catherine Ngai, Reuters |

Oil prices tumbled by 4 percent on Monday on concern that record Iraqi crude exports and rising U.S. output would undermine OPEC’s efforts to curb global oversupply.

U.S. crude futures CLc1 settled down $2.03 at $51.96 a barrel, while Brent futures LCOc1 settled down $2.16 at $54.94 a barrel.

In Iraq, OPEC’s second-biggest producer, oil exports from the southern Basra ports reached a record high of 3.51 million barrels per day (bpd) in December, the oil ministry said.

OPEC members agreed in November on the first deal to cut oil output since 2008, limiting supplies to 32.5 million bpd starting Jan. 1 for six months.

Iraq’s oil ministry underscored that the high levels from the south would not affect the country’s decision to cut January production to comply with the OPEC agreement. But some remained concerned over the feasibility of the cuts, which would have to come from the north.

“We have compliance with the Gulf countries, but the rest of the slate is looking a bit shaky,” said Robert Yawger, director of the futures division at Mizuho Securities USA.

“With the big numbers coming out of the southern port of Basra for December … it’s implying that Iraq may be the first big crack in the wall of the OPEC agreement,” he added.

Sources also told Reuters that Iraq’s State Oil Marketing Company had given three buyers in Asia and Europe full supply allocations for February.

The lower optimism comes even though Russia, one of the world’s largest crude producers, is apparently sticking with the agreement to cut. Russian energy market sources told Reuters the country’s output had fallen by 100,000 bpd in the first week of the month.

Kuwait’s oil minister added on Monday that an OPEC committee will meet in Vienna on Jan. 21-22 to monitor compliance and agree on a “final monitoring mechanism.”

Last week, U.S. energy companies added oil rigs for a 10th week in a row, Baker Hughes data showed, with some analysts expecting the U.S. rig count will rise to 850-875 by the end of the year.

Dealers say that the recent uptick in U.S. shale hedging to protect future output for 2018 and beyond could put more pressure into the market. They add that high inventories nationwide are still a hurdle for the market.

“The price weakness … calls attention to some bearish news that the market had been willing to ignore, such as the high level of (fourth quarter) supply still in transit to consumers and the uptrend in U.S. drilling rigs and actual oil production,” said Tim Evans, energy futures specialist at Citigroup, said in a note.


Oil And Gas Industry Eager To Find Out Changes Trump Will Bring

By William Yardley, Greely Tribune |

The election of Donald Trump has thrilled many people across the West’s oil and gas industry who say his promises to roll back regulations will free it from unfair and unnecessary obstacles imposed by President Barack Obama.

“If the Trump administration does nothing but stop being hostile to us, we’ll be happy,” Kathleen Sgamma, president of Western Energy Alliance, said.

Yet how much will things really change under a Trump administration?

Even as some in the oil and gas industry are optimistic — and as conservation groups gird for protests and court fights to protect public lands — experts say blaming government, or giving it too much credit, for restricting oil and gas is mostly missing the point. If another Western energy boom is around the corner, they say, it will be because prices rise not because regulations decline.

“The market is the elephant in the room,” said Michael Lynch, president of Strategic Energy & Economic Research, an industry consulting firm. “All this other talk about access to public lands and such for oil and gas, it’s a pretty minor issue.”

Although the Obama administration is often criticized by the fossil fuel industry, it presided over a boom that saw domestic oil and gas production soar.

The administration allowed a broad and controversial expansion of hydraulic fracturing, or fracking, which infuriated many conservation groups while it transformed parts of North Dakota, Oklahoma, Texas and the Rockies into meccas for energy workers, and the United States became a powerful new global energy player.

“For a Democrat, he’s really been pro-oil,” Lynch said of Obama. “He’s been a lot nicer to oil than some Republicans.”

But the boom helped deflate itself by driving up supply and driving down prices for oil and gas. Around the same time, the administration began paying more attention to climate change — limiting emissions from power plants and methane from oil and gas production, removing certain public lands from energy development and rejecting or withholding decisions on projects such as the Keystone XL and Dakota Access oil pipelines.

Those efforts, which intensified in 2015 before the Paris climate talks, came to define the Obama administration in the minds of many in the industry.

Sgamma, who has praised Trump’s selection of people who question climate science for top positions in his administration, said in the past two years, her group, which is based in Denver, had fought to shape 71 regulatory processes initiated under the Obama administration and that it had submitted 62,000 pages of documentation while doing so. She said regulations reduce production during periods of low prices because they raise the floor price at which production is profitable.

“The industry is cautiously optimistic on the market front but a bit exuberant on the political front,” Sgamma said. “Actually, take away the ‘a bit.’ ”

Federal approval processes do take longer than state processes, which the energy industry often cites as sufficient. But complaints over regulatory delays have persisted for decades, through Democratic and Republican administrations.

“Twenty years ago, someone said, ‘The best day of your career is when you get a lease on federal lands and the worst day in your career is when you get a lease on federal lands,’ because it’s such a pain,” said Lynch, who favors a faster federal process.

Sarp Ozkan, a manager of drilling analytics for Drillinginfo.com, said with benchmark oil prices currently well below $60 per barrel, companies are inclined to focus on known sources such as the Permian Basin of West Texas rather than explore public lands.

But Ozkan did say Trump could make a difference. Should he approve a project such as the Dakota Access pipeline, for example, that could make drilling in western North Dakota more profitable at lower prices because transporting oil by pipeline is cheaper than by rail.

“You’re going to be focusing on what makes you the most money, what gets you the quickest return on your capital,” Ozkan said of industry.

Michael Freeman, a staff attorney for the law firm Earthjustice who specializes in oil and gas issues, noted energy companies retain hundreds of leases on public lands in the West they are not acting on because of low prices.

“This idea that the current administration has been strangling the industry by over-regulating them is just not accurate factually,” Freeman said. “There are plenty of permits to drill if they want to drill.”

This month, the global energy company BP announced plans to open an office in Denver. At first glance, the move might seem like evidence of the exuberance Sgamma described.

In announcing the move, BP, which will transfer 200 people from Houston to a new building in the city’s trendy Lower Highlands area in early 2018, said the decision was driven by its desire “to be closer to its substantial asset position in the Rocky Mountain region and an important energy hub of the future.”

But the company says that future took shape long before Trump stunned the world with his victory in November, that the move was motivated by the changing energy market not a changing administration and that it reflects a broader awareness that dependence on fossil fuels will decline as the world fights climate change.

“There’s an abundance of natural gas in the Rockies,” David Lawler, chief executive of BP’s Lower 48 division, said in an interview. “As a company, our strategy is to grow more toward gas. We see it as an environmentally friendly bridge fuel to the future as renewables become more important. It has a lower carbon footprint, and that’s part of our strategy as we go forward.”

Lawler, who grew up in Denver and graduated from the Colorado School of Mines, said BP was optimistic about the Trump administration but uncertain of what might change.

“We worked well with the Obama administration, and we look forward to working with the Trump administration, as well,” he said. “We don’t really see a red wellhead or a blue wellhead. We think it’s energy that’s vital to America and we want to provide that energy to America and do it in a way that protects the environment.”

Goldman Sachs: Oil Prices To Remain Under $60 In H1 2017

By Tsvetana Paraskova, Oilprice.com |

On the back of OPEC cuts, Goldman Sachs expects WTI oil prices to rise to US$57.50 in the first half this year as reduced supply would move the market into deficit and draw down the current large oversupply, ZeroHedge reports, citing Goldman’s Allison Nathan view of “what keeps Goldman up at night” about this year’s commodity and currency markets and global political and economic policy developments.

Brent prices are seen peaking at US$59 per barrel in the first half with the cuts implemented. The cuts would also push the oil market to a deficit in the first quarter, Goldman says, expressing a more optimistic view on the drawdown of oversupply than OPEC, which expects the market to rebalance in the second half, than the International Energy Agency (IEA) which sees the cuts likely moving the market into deficit in the first half by an estimated 600,000 bpd.

In Goldman’s view, the deficit in the first quarter would move the market into backwardation by the summer.

However, U.S. shale is also expected to respond to higher oil prices, which implies limited upside above the high-$50s, Goldman Sachs says.

Commenting on U.S. production, the bank said:

“We continue to believe shale productivity gains allow for substantial US production growth at oil prices of $50-$60/bbl and that E&P companies reaping these production gains are not being sufficiently rewarded.”

The investment bank’s forecasts hinge on whether OPEC and non-OPEC producers that have joined the cuts would deliver on their promises. Goldman currently sees compliance at 84 percent, in view of the historically poor compliance from countries outside of the Gulf Cooperation Council (GCC), which includes Saudi Arabia, Kuwait, Qatar, Bahrain and Oman. Full compliance means a US$6-per-barrel upside to Goldman’s price projection.

Still, basically no one expects full compliance, and Goldman Sachs is no exception, saying that even if Russia had committed to a 300,000-bpd cut, its share would rather be closer to 200,000 bpd and total non-OPEC cuts would be around 460,000 bpd, and technically – 100,000 bpd less, because of natural declines in output rather than actual cuts.

Regarding Russia, Goldman said: “We expect Russia will freeze production at current levels”.

Colorado Drilling Rig Count Now At 28, Highest Since November 2015

By Aldo Svaldi, The Denver Post |

Petroleum producers in Colorado put another rig to work this week, bringing the total count in the state to 28, the highest number since Thanksgiving week of 2015.

At the start of the month, there were 20 rigs active in the state, on par with the number active across much of the summer and fall. But eight rigs have joined in the search for oil and gas this month, a 40 percent increase.

The U.S. rig count rose by 16 last week to 653, but remains down 47 from the 700 rigs operating a year ago. A year ago this week, Colorado had two dozen oil and gas rigs active.

U.S. crude prices closed just above $53 a barrel Friday, a healthy premium to the prices available across much of the year. An agreement among members of the Organization of the Petroleum Exporting Countries and other countries to lower output by 1.8 million barrels a day starting next year has lifted prices.

That in turn has left some domestic producers and their financial backers more confident about earning a return off new wells.


Bonanza Creek, Other U.s. Energy Firms Announce Chapter 11 Plans

By Tracy Rucinski and Ahmed Farhatha, Yahoo! Finance |

Bonanza Creek Energy Inc and two other energy firms announced on Friday plans to file for bankruptcy in coming weeks, joining a long list of U.S. energy companies that have succumbed to a drop in oil prices.

Oil and gas producers Bonanza Creek and Memorial Production Partners LP and oilfield services provider Forbes Energy Services Ltd each said they had a plan to reduce debt and transfer ownership to creditors.

Global oil prices have fallen more than 50 percent since mid-2014, eroding cash flows of oil producers and crimping their ability to meet debt and interest payments.

As of Dec. 14, 114 oil and gas producers had filed for bankruptcy in 2016 with $57 billion in total debt, more than double the number of filings in 2015, according to Haynes & Boone, a law firm that specializes in energy restructuring.

Among companies like Forbes that provide well-site services to energy exploration firms, 110 had filed for Chapter 11 protection with $17 billion of debt as of Dec. 14, also more than double the 2015 number, according to Haynes & Boone.

Looking ahead to next year, restructuring advisers said they expect more energy-related bankruptcy filings, as the sector prepares for an upturn that could follow implementation of President-elect Donald Trump’s pro-drilling agenda or OPEC’s plan to cut oil production for the first time in eight years.

Denver-based Bonanza Creek, with oil and natural gas assets in Colorado and Arkansas, said it would file for bankruptcy on or before Jan. 5 with a plan to eliminate $850 million in debt and provide $200 million in new equity.

The company said it expects to exit bankruptcy in the first quarter of 2017. Bonanza Creek’s shares slid 55 percent to $0.88 in morning trade.

Memorial Production, with oil and gas assets in Texas, Louisiana, Colorado and California, said it would file for Chapter 11 in coming weeks with a plan to eliminate $1.3 billion of debt. Its shares were down 55 percent to $0.18.

Meanwhile, Forbes Energy said it had reached a prepackaged plan with lenders and would file for bankruptcy in Houston on or before Jan. 23, 2017. Its shares lost 6.3 percent to $0.04 in over-the-counter trading on Friday.

Earlier this month, Stone Energy Corp filed for Chapter 11 bankruptcy and said it would eliminate about $1.2 billion in debt by transferring control of the company to its noteholders.

Boulder County Again Extends Moratorium On Oil And Gas Development

By John Fryar, The Denver Post |

Boulder County’s commissioners on Tuesday extended their moratorium on oil and gas development again, this time until May 1.

Planners and the county attorney’s office need more time to complete research and draft regulations the commissioners said back in November that they wanted to consider, said Kim Sanchez, chief planner in the Land Use Department’s development review division.

That time is also needed to give the staff time to develop a plan for implementing the new oil and gas development rules and restrictions, once the commissioners adopt them, Sanchez said.

Boulder County’s original moratorium was imposed in February 2012 and has been extended several times. The current moratorium, set by the commissioners on Nov. 15, was to expire Jan. 31.

Commissioner Elise Jones said it is “absolutely critical” to have adequate regulations in place when Boulder County’s moratoriums end and the county begins accepting, reviewing and processing applications for drilling wells, producing oil and gas, and locating pipelines and other oil and gas facilities in unincorporated parts of the county.

It’s “really important that we get it right,” Jones said.

Commissioner Deb Gardner said many Boulder County residents aren’t satisfied with moratoriums and “want us to ban fracking,” the hydraulic fracturing process of injecting sand, water and chemicals underground to free up oil and gas deposits.

“But we don’t really have that authority in the state of Colorado,” Gardner said. She said it is important to come up with the best local oil and gas development regulations that legally can be implemented, in an effort “to keep people and the environment safe in Boulder County.”

Bp To Move Oil And Gas Headquarters Staff From Houston To Denver

By Associated Press, KXAN |

Oil and gas company BP says it will move headquarters staff from Houston to Denver because of the region’s importance as an energy hub.

CEO David Lawler said Wednesday there are increasing business opportunities in the Rockies, where the company has about two-thirds of its oil and natural gas production and proven reserves. BP America tells KXAN News its headquarters will remain in Houston and that only BP’s U.S. Lower 48 onshore business will establish its headquarters in Denver.

The company says it will initially have at least 200 employees at the new Denver office.

A number of employees from the company’s current head office in Houston are expected to relocate to Denver, but there will still be an office in Houston to manage the company’s operating assets in Texas. Oklahoma will also continue to be a key hub.

Goldman Sees Oil Lower For Longer After Getting A Bump From Cuts

By Bloomberg, BOE Report |

Oil prices boosted by global output reductions will be capped because of new supply before long, according to Goldman Sachs Group Inc.

The cuts by OPEC members and nations outside the group, as well as strong demand growth, will probably help curb inventories by next summer, analysts including Damien Courvalin said in a note dated Dec. 16. While the bank raised its oil-price forecasts for the second quarter of 2017, it decreased its crude estimates for 2018 on concern that new production will enter the market.

Brent crude, the benchmark for more than half of the world’s oil, has surged since the Organization of Petroleum Exporting Countries agreed Nov. 30 to trim output for the first time in eight years. A broader deal reached later in Vienna between the group and 11 non-OPEC producers including Russia encompasses countries that produce about 60 percent of the world’s crude. Still, the increase in prices could prompt a revival in production in other areas, including U.S. shale fields.

“The low-cost producer response to drill for more oil will likely limit the rebound in costs for the rest of the industry, as activity will rise in the most productive areas with the largest oil reserves, extending the oil service spare capacity,” the Goldman analysts wrote in the report.

Gains for Now

For now, though, Goldman sees chances of crude extending its gains. The bank raised its price forecast for West Texas Intermediate, the U.S. benchmark, to $57.50 a barrel from $55 for the second quarter of 2017. The estimate for Brent was increased to $59 a barrel from $56.50 for the same period.

WTI crude traded at $51 a barrel on the New York Mercantile Exchange by 5:06 p.m. Singapore time. Brent in London was at $54.22 a barrel. The potential ramp-up of Libyan oil production and poor compliance to the output deal may limit price gains, according to Goldman. A stronger U.S. dollar is another risk, the bank said.

There will be “little evidence” of production cuts until mid-to-late January, which is likely to be the catalyst for the next large move in prices, according to Goldman. Oil will rise higher to $55 a barrel in that scenario, it said. The bank expects 84 percent compliance to the 1.6 million barrels a day in announced reductions from the October production levels released by the International Energy Agency.

Goldman estimates OPEC members, excluding Indonesia, will reduce supplies by 974,000 barrels a day in 2017. For non-OPEC producers, 388,000 barrels a day of reductions are expected, according to the report. Average demand growth is forecast to reach 1.55 million barrels a day this year, while it is predicted to increase by 1.5 million barrels a day in 2017, Goldman said.

Balanced Market

Beyond the first half of 2017, Goldman said it expects that “the global market will remain balanced, with Brent prices between $55 a barrel and $60 a barrel, on higher production from low-cost producers, a greater shale supply response and the continued ramp up in legacy projects.” It reduced its 2018 average price forecast for Brent to $58 a barrel from $63.

U.S. producers will be able to achieve 800,000 barrels a day of annual output growth as WTI crude stabilizes at $55 a barrel, Goldman said. New projects are also estimated to come online in 2017 and 2018, it said, reducing its WTI average price forecast for 2018 to $55 from $60.

Broomfield May Impose Moratorium On Oil And Gas Development

By Cathy Proctor, Denver Business Journal |

Broomfield’s city council on Tuesday unanimously approved a proposal to impose a six-month ban on processing applications for oil and gas-related permits in the face of plans by Denver’s Extraction Oil & Gas Inc. to develop up to 141 new wells from four sites within its borders.

Extraction is proposing to put up to 41 wells at one of the sites, up to 40 each at a second and third site and up to 20 wells at a fourth site.

Colorado’s Oil, Gas, Mining Jobs Not Predicted To Come Back In 2017

By Adrian D. Garcia, Denverite |

Nearly all of the industries in Colorado are expected to grow next year, according to a new economic outlook from the University of Colorado Boulder’s Leeds School of Business.

The exception: The state’s natural resources and mining sector.

CU economists forecast Colorado coal companies and oil and gas producers have another difficult year ahead.

Some in the state hope the results of the recent presidential election will mean a revitalization for coal and other energy jobs. Since crude oil prices started to plummet in 2014, roughly 10,800 natural resources and mining workers have lost their jobs.

That trend is expected to continue — albeit less dramatically — in 2017, according to the report.

“While the value of production is expected to increase on slightly higher prices, industry employment is expected to decrease modestly—less than 1 percent, with year-over-year increases in the second half of the year,” the outlook states.

Overall, the forecast calls for a gain of 63,400 jobs in Colorado in 2017.

The state is expected to add far more service jobs than manufacturing positions. From 2006–2016, the state added 329,200 services-producing jobs, while the total goods-producing employment has fallen by 12,200 jobs across the same period.

“Colorado will continue to rank among the top 10 states nationally for employment growth in 2017, a six-year standing,” economist Richard Wobbekind said in a statement. “And it is poised for continued long-term growth, boasting a skilled workforce and high-tech, diversified economy; relatively low cost of doing business; global economic access and exceptional quality of life.”

Chevron Sets 2017 Capital Budget At $20 Billion

By OGJ Editors, Oil & Gas Journal |

Chevron Corp. has cut its planned capital and exploratory investment program for 2017 by 15% from this year and 42% from 2015 to $19.8 billion, which includes $4.7 billion of planned affiliate expenditures.

“Our spending for 2017 targets shorter-cycle time, high-return investments, and completing major projects under construction. In fact, over 70% of our planned upstream investment program is expected to generate production within 2 years,” said John Watson, Chevron chairman and chief executive officer.

“This is the fourth consecutive year of spending reductions. Construction is nearing completion on several major capital projects, which are now online or expected to come online in the next few quarters. This combination of lower spending and growth in production revenues supports our overall objective of becoming cash balanced in 2017,” he said.

Of the $20 billion, $17.3 billion will be directed toward the firm’s upstream divisions, with international operations receiving $11.6 billion and US receiving $5.7 billion.

About $8.5 billion of planned upstream capital spending relates to base-producing assets, including about $2.5 billion for shale and tight investments, the majority of which is slated for Permian basin developments in Texas and New Mexico.

Another $7 billion of the planned upstream program is related to major capital projects currently under way, including $2 billion toward the completion of the Gorgon and Wheatstone LNG projects in Australia, and $3 billion of affiliate expenditures associated with the Future Growth Project-Wellhead Pressure Management Project (FGP-WPMP) at Tengiz field in Kazakhstan (OGJ Online, July 5, 2016).

Global exploration funding accounts for $1 billion of the total upstream budget, and the remainder is primarily related to early stage projects supporting potential future development opportunities, the firm says.

Total downstream spending is expected to be $2.2 billion, with US downstream receiving $1.6 billion and international downstream receiving $600 million.


Oil Prices Fall As U.s. Crude Stocks Shrink, But Product Supplies Climb

By Myra P. Saefong & Dan Strumpf, MarketWatch |

Analyst says crude-supply fall may be due to tax-related year-end destocking

Oil futures lost more ground Wednesday after U.S. government data revealed a weekly decline in crude stockpiles, but petroleum-product inventories rose much more than expected.

Analysts also suggested that the weekly decrease for crude supplies may be due to tax-related destocking that often happens at year-end.

January West Texas Intermediate crude CLF7, -1.41% lost 73 cents, or 1.4%, to trade at $50.20 a barrel on the New York Mercantile Exchange. It was trading at $50.41 before the supply data. February Brent crude LCOG7, -1.04%  shed 55 cents, or 1%, to $53.38 a barrel.

The U.S. Energy Information Administration reported that domestic crude supplies fell by 2.4 million barrels for the week ended Dec. 2. That was larger than the 2.2 million-barrel decline reported by American Petroleum Institute late Tuesday, according to sources. Analysts polled by S&P Global Platts had expected a fall of 1.7 million barrels.

Crude inventories saw a” solid drop, despite a rebound in imports, as refining activity increased,” said Matt Smith, director of commodity research at ClipperData.

But “gasoline and distillates both saw stockpiles rise as implied demand dropped for both on the prior week,” he said. “The solid builds to the products, despite being a seasonal trend, are helping to usher the crude complex lower.”

Gasoline supplies climbed by 3.4 million barrels and distillate stockpiles rose 2.5 million barrels, according to the EIA. The S&P Global Platts survey had forecast much smaller increases of 900,000 barrels for gasoline and 100,000 barrels for distillates.

On Nymex, January gasoline RBF7, -1.03%  traded at $1.529 a gallon, down less than a penny, while January heating oil HOF7, -0.74%  edged down by half a cent to $1.635 a gallon.

Tax-related fall in crude stocks

Troy Vincent, oil analyst at ClipperData, said the supply “report screams ad valorem tax preparations” as crude stocks fell despite refinery runs rising by just 134,000 barrels a day. Valorem tax refers to a sales or transaction tax.

He pointed out regional stock variations, including inventories along the Gulf Coast, which dropped by 6.9 million barrels, while stocks at crude storage hub Cushing, Okla., rose by 3.8 million barrels. That points to “logistical maneuvering ahead of ad valorem tax assessments in Texas and Louisiana at month’s end,” said Vincent.

Oil companies look to shed taxable assets such as oil from their books as they year’s end approaches.

Supply draws are “natural this time of year as destocking occurs due to year-end tax consequences,” said John Macaluso, an analyst at Tyche Capital Advisors.

And for now, crude prices are likely to see range-bound trading as market participants await the comments from the Organization of the Petroleum Exporting Countries’ meeting with non-OPEC oil producers this week, he said.

Last week’s OPEC meeting offered a production cut that could have limited impact in the long run, analysts say. But skepticism is rising over how likely individual cartel members will abide by production quotas.

“It has yet to be seen where the 600,000 [barrel a day] cut of non-OPEC production will come from,” particularly as Indonesia is now considered a non-OPEC producer, said Macaluso.

Questions also linger over whether non-OPEC members such as Russia will follow through on commitments to cut output. Reports of higher production by OPEC in November have also initially dampened sentiment, analysts said.

“[Skeptics] are also questioning how the cuts will be enforced, especially given OPEC’s history of breaking their own rules,” said Stuart Ive, private client manager at OM Financial. “These types of arguments trigger profit-taking and price consolidation, but there is always a flip side to these views.”

Still, traders widely expect prices to remain elevated into 2017 now that OPEC has reasserted its clout. BMI Research said it expects Brent prices to average $55 a barrel next year as the oversupply that has long weighed down prices comes to an end.

Natural-gas futures, meanwhile, resumed their climb to touch new one-year highs.

The recipe for a bullish winter 2016-2017 for natural gas would include a “dash of slowing production growth, a smidgen of higher export volumes and the pièce de résistance of some cold winter weather,” Nicholas Potter at Barclays said in a note Wednesday. “The missing ingredient had been the winter weather, but with December forecasts continuing to come in colder.”

January natural gas NGF17, +1.02%  rose 4.6 cents, or 1.3%, to $3.681 per million British thermal units.

Colorado Energy Company In $375m Asset Sale

By Ben Miller, Denver Business Journal |

A Colorado energy company is selling some of its North Dakota assets in a deal that will net it about $375 million.

Whiting Petroleum Corp. (NYSE: WLL) said it’s selling its 50 percent interest in its Robinson Lake natural gas processing plant in Mountrail County, North Dakota, and its 50 percent interest in its Belfield natural gas processing plant and associated natural gas, crude oil and water gathering systems located in Stark, Billings and Dunn Counties, North Dakota.

An affiliate of Tesoro Logistics Rockies LLC, is buying the assets for a total of $700 million, with Denver-based Whiting receiving $375 million.

“We expect this sale to further strengthen our balance sheet and provide us with additional financial flexibility to invest for growth in Whiting’s top tier producing assets in the Williston and DJ Basins,” said James Volker, Whiting’s chairman, president and CEO, in a statement.

In August, Whiting Petroleum was ranked as Denver’s fourth-largest oil and gas company by the Denver Business Journal, ranked by 2015 revenues. In June, it was ranked the state’s 20th largest public company by the DBJ, based on 2015 sales.

Oil Price Rally Likely Short-lived As Opec Deal Not Enough To Reduce Glut

By Reuters |

The oil price rally sparked by an OPEC-Russia deal to cut output is likely to be short-lived, say traders in Asia, because the agreement may only draw more supplies from storage tanks and more crude shipments from the United States.

And even without increased supplies from elsewhere, if the Organization of the Petroleum Exporting Countries (OPEC) and Russia do reduce production by 1.5 million barrels per day (bpd) as pledged, the cuts would not be deep enough to shrink a glut that began to build in mid-2014, traders said.

“The cut by OPEC will be largely offset by increases in U.S. production where the rig count has already increased,” said India Oil Corp’s Director of Finance A K Sharma.

“So surplus (oil) will stay in the market. If there is any impact, it will be short term.”

Higher oil prices and lower production costs are encouraging U.S. shale operators to increase output, while Kazakhstan started production at the Kashagan field in October. [O/R]

Traders said the extent of the impact of the output deal will also depend on how it affects exports from Saudi Arabia and other OPEC members.

Cuts in export supply from producers could come from changes in operational tolerance, a contractual clause that allows either the buyer or seller to increase or reduce volumes by up to 10 percent, trade sources said.

The OPEC deal “will provide some price momentum but it cannot be compared with the cut seen back in 2008,” a Singapore-based trader said, referring to the last OPEC production cut at 4.2 million bpd.

Production cuts early in the year are also a normal response to a low-demand season in February and March when Asian refiners typically shut for maintenance, he said.

Stronger prompt prices have also narrowed oil contango market structures, potentially prompting the release of oil from storage that could add to supplies, traders said.

Oil is more expensive in future months in a contango market, encouraging traders to store the commodity, but supplies are backed out when spreads start to weaken.

Strength in Middle East crude benchmark Dubai may also further narrow its price gap against Brent, leading Asia refiners to buy more oil from the Atlantic Basin and the Americas, traders said.

IMPACT ON OIL DEMAND, MARGINS

Asian refiners are more concerned about the impact of higher oil prices on demand and profitability rather than the OPEC supply cuts as most have other crude sources to turn to.

China’s independent refiners – also known as teapots – usually take more crude from South America and West Africa, for example.

The OPEC cuts will come mostly from Saudi Arabia and its Middle Eastern allies United Arab Emirates and Kuwait, from whom teapots barely import, so the impact will be minimal, said Zhang Liucheng, vice president of Dongming Petrochemical Group, the country’s largest independent refiner.

As for any broad increase in oil prices, “whether it would affect teapots’ crude demand, we’ll need to watch out for domestic demand for refined fuel, which has not been great as even gasoline demand is growing less fast,” Zhang said.

A spokesman at South Korea’s second-largest refiner GS Caltex [GSCAL.UL] said: “What’s more important to us is the product crack spread rather than the rising crude oil price … We have to watch how the OPEC decision will affect oil demand.”

For a graphic on OPEC’s struggle, click here

(Reporting by Florence Tan in SINGAPORE, Chen Aizhu in BEIJING, Nidhi Verma in NEW DELHI, Osamu Tsukimori in TOKYO and Jane Chung in SEOUL; Writing by Florence Tan; Editing by Tom Hogue)

ND Leaders Call For Dapl Approval; Energy Transfer, Sunoco Merge

By Patrick C. Miller, The Bakken Magazine |

Three of North Dakota’s top political leaders sent a letter to Pres. Barack Obama today calling on him to approve—without delay—the final federal easement that will allow the Dakota Access Pipeline (DAPL) to cross the Missouri River under the Oahe reservoir.

Following a weekend of violent protests, the letter from Sen. John Hoeven, Congressman Kevin Cramer and Gov. Jack Dalyrymple—all North Dakota Republicans—urged Obama “in the strongest possible terms” to provide federal law enforcement resources immediately to state and local agencies to maintain public safety and “to prevent further destruction on and surrounding federal lands.”

In another DAPL-related event, Sunoco Logistics Partners LP (SXL) announced Tuesday that it would acquire Energy Transfer Partners LP (ETP), the Dallas-based company building the pipeline. Sunoco owns a 30 percent interest in DAPL.

Last week, the two companies said they were taking legal action in federal court to seek a judgement declaring that they have a legal right-of-way to build and complete DAPL without interference from the U.S. Army Corps of Engineers, which has said it is continuing its review of the easement.

According to a news release, the merger agreement “is expected to provide significant benefits for SXL and ETP unitholders as the combined partnership will have increased scale and diversification across multiple producing basins and will have greater opportunities to more closely integrate SXL’s natural gas liquids business with ETP’s natural gas gathering, processing and transportation business.”

Michael Hennigan, Sunoco president and CEO, said that despite the current low-oil-price market, he remains bullish on the merger’s long-term prospects.

“At the end of the day, we’re trying to position ourselves such that we can do well in the current markets and then really thrive if the market recovers from a demand standpoint,” he explained. “I personally remain very bullish on global demand and, in time, I think you’re going to see U.S. supply coming up to meet that. I think we’re positioned to take advantage to that.”

Asked if ETP would do anything differently on the DAPL project going forward, Kelcy Warren, the company’s CEO, said, “We’ve done everything right. We’ve not done one thing incorrectly on this project. Sure, can you Monday morning quarterback? There were some things done along the way that maybe we would not have done exactly the same, but we followed all the laws, rules, regs, procedures—and we get this.”

The letter from Hoeven, Cramer and Dalrymple said the Obama administration’s inaction on granting the final easement has “created undue hardship and uncertainty for area residents, private landowners, tribal members, construction workers and law enforcement personnel.”

According to the letter, the 1,172-mile-long, $3.8 billion pipeline is 98 percent complete in North Dakota and 86 percent complete overall. DAPL would carry about 500,000 barrels of Bakken crude per day to a terminal in Patoka, Illinois.

“We have seen instances of trespassing, vandalism, theft and fire on privately owned ranchland,” the letter continued. “Residents have endured the challenges caused by roads being blocked or closed, either by protest activity or law enforcement’s response to it to ensure safety at a time when farmers and ranchers are busy harvesting, hauling hay, shipping calves and moving their herds from summer pasture. In addition, law enforcement is investigating cases of butchered, mutilated, injured and missing cattle, horses and bison in areas adjacent to sites occupied by protesters.”

The letter concludes by asking Obama to direct the Corp of Engineers to follow established regulatory criteria and approve the final easement.

Whiting Petroleum: Dakota Access Pipeline May Reduce Oil Breakeven To $47

By Elephant Analytics, Seeking Alpha |

Summary

  • Whiting’s production comes mostly from the Bakken, which has high oil differentials of $8 to $9 per barrel.

  • The Dakota Access Pipeline is expected to reduce Bakken oil differentials by around $3 per barrel.

  • Although the pipeline has been stalled by controversy over the Lake Oahe section, it is likely to be completed in 2017 (perhaps with a different route).

  • Whiting’s unhedged oil breakeven point may fall to $47 with reduced oil differentials and its EBITDA may improve by around $75 million per year.

Whiting Petroleum (NYSE:WLL) is mainly concentrated in the Bakken with around 90% of its production coming from that region. The Bakken’s competitiveness has been hindered by high oil differentials as an $8 to $9 oil differential is substantial at $40 to $50 oil, while Permian producers often have minimal differentials. The Dakota Access Pipeline promises to significantly decrease Bakken oil differentials though, pushing Whiting’s unhedged breakeven point under $50.

The Dakota Access Pipeline

The completion of the Dakota Access Pipeline has been stalled due to protestsover the route of the pipeline. Most of the pipeline has already been completed, but the contentious part of the route involves a section running under Lake Oahe. A large portion of the Standing Rock Sioux Indian tribe is opposed to this section since the pipeline passes through sacred areas to the tribe and they also believe that the water supply from Lake Oahe would be put at risk by the pipeline. A large amount of protesters have also been drawn to the area to oppose the pipeline.

The Lake Oahe section runs through Army Corps land, and thus permission is needed from the Army Corps to drill under the lake. This permission was recently delayed as the Army Corps mentioned that more discussion with the Standing Rock Sioux was needed. Energy Transfer Partners (NYSE:ETP) and Sunoco Logistics Partners (NYSE:SXL) are now taking the matter to federal court.

There is a general belief that the Dakota Access Pipeline will eventually be completed, although with a decent chance that the pipeline is re-routed away from Lake Oahe due to the controversy over that section. Donald Trump’s victory improves the chances that the Dakota Access Pipeline is completed and should be positive for new pipelines in general. Baird mentioned that Trump’s election meant that “Dakota Access went from being in some doubt to being a solid bet”.

Bakken Differentials And Competitiveness

Whiting believes that the Dakota Access Pipeline would reduce North Dakota oil differentials from around $8.50 per barrel of oil to $5.50 per barrel of oil. BTU Analytics also forecasts a significant decrease in differentials due to new pipelines coming online with Q2 2018 Bakken differentials expected to be over $4 less than Q2 2016 Bakken differentials. The Dakota Access Pipeline should also reduce in pipeline takeaway capacity exceeding production in the Bakken.

A $3 to $4 reduction in oil differentials would make the core Bakken roughly on par with the Delaware Basin Bone Spring play in the Permian based on Raymond James’s Q1 review of the breakeven oil prices for US onshore resource plays. The Permian is continuing to make a lot of discoveries and improvements, so it would still have an edge on the Bakken, but the expected reduction in oil differentials will help the Bakken significantly.

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Source: Raymond James via Natural Gas Intel

Effect On Whiting’s Financials

A $3 reduction in Bakken oil differentials would reduce Whiting’s overall oil differential by around $2.70 per barrel. This would add around $76 million to Whiting’s EBITDA and reduce its unhedged oil breakeven point to around $47 (assuming conversion of its remaining mandatorily convertible notes). At an EV/EBITDA multiple of 6x, Whiting’s value would increase by around $1.25 per share if the Dakota Access Pipeline is completed and its Bakken oil differential goes down by $3 per barrel.

Conclusion

Despite progress on the Dakota Access Pipeline currently stalling out, it is expected to be completed in 2017. This will have a fairly significant impact on Bakken oil differentials, reducing the differential by around $3 and improving the Bakken’s competitiveness. For Whiting Petroleum, the reduced oil differentials could improve its EBITDA by approximately $75 million per year and bring its unhedged oil breakeven point down to around $47. If the pipeline is completed and Whiting’s oil differentials go down as expected, my valuation range for Whiting would be increased to $9 to $11.50.


Usgs: Largest Oil Deposit Ever Found In U.s. Discovered In Texas

By Mary Bowerman, USA TODAY Network |

The U.S. Geological Survey recently discovered the largest continuous oil and gas deposit ever found in the United States, officials said Tuesday.

The agency announced that the Wolfcamp shale, located in the Midland Basin portion of Texas’ Permian Basin, contains 20 billion barrels of oil and 1.6 billion barrels of natural gas liquid.

The Permian Basin is one of the most productive oil and gas areas in the country, and more than 3,000 horizontal wells have been drilled in the Wolfcamp shale section, the agency said in a statement.

“The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more,” said Walter Guidroz, program coordinator for the U.S. Geological Survey (USGS) Energy Resources Program.

The oil is worth almost $900 billion at current prices, Bloomberg News reported.

The discovery is nearly three times larger than oil found in 2013 in the Bakken and Three Forks formations in the Williston Basin Province of Montana, North Dakota and South Dakota, according to the USGS.

According to the statement, continuous oil and gas means the resource is dispersed throughout the area, unlike conventional accumulations that exist in one place. Because of the location of the oil and gas, officials will have to use special recovery methods like hydraulic fracturing to recover the resources, according to the USGS.