The Spin on Changing Marcellus Gas Estimates

- The Spin on Changing Marcellus Gas Estimates

Friday, August 26, 2011
The Philadelphia Inquirer
by Andrew Maykuth

So how much natural gas is in the Marcellus Shale?

The U.S. Geologic Survey on Tuesday estimated the formation contains 84 trillion cubic feet (Tcf) of natural gas, up from a mere 2 Tcf in 2002. Headlines exploded across the Internet: "Federal report boosts Marcellus Shale estimate."

But on Wednesday another federal agency, the U.S. Energy Information Administration, which just a month ago estimated the shale contained 410 Tcf, announced it was revising its number downward in response to the USGS estimate. New headlines: "U.S. Slashes Marcellus Shale Gas Estimate 80%."

Up? Down?

For adversaries in the increasingly politicized and polarized world of shale gas, the USGS's new assessment cuts both ways.

Anti-drilling activists said the EIA's downward revision supported their view that the industry has hyped the new discoveries to generate political and investor excitement.

"I remain concerned about the processes which lead to the original estimates, and I have additional questions about how this change will impact the outlook for shale gas," U.S. Rep. Maurice Hinchey (D., N.Y.) said in a statement.

But the Marcellus Shale Coalition, an industry trade group, touted the USGS's upward revision as further proof of the abundance of shale gas.

The issue is important because of the growing controversy about shale gas, which the EIA says accounts for about a quarter of the nation's natural gas production. The nation consumes about 25 Tcf a year, mostly for heating and power production.

The Securities and Exchange Commission and the New York State Attorney General's Office are investigating industry estimates of gas reserves, which are more optimistic than the federal projections.

Indeed, during recent sessions with investment analysts, four big Marcellus operators -- Chesapeake Energy Corp., Range Resources Corp., Ultra Resources Inc., and Cabot Oil & Gas Corp. -- estimated their combined 2.9 million acres contain 76 Tcf, nearly as much as the USGS estimates for the entire formation.

The EIA says it is waiting to set its estimate once the USGS provides more information about its assessment to understand where the agencies diverge. "We will not be able to be more precise until that work is completed," said Jonathan Cogan, an administration spokesman.

Even at 84 Tcf, the Marcellus still contains a lot of gas, more than any of other shale-gas plays, according to the USGS.

Just three years ago, Pennsylvania State University professor Terry Engelder and a colleague, Gary Lash, estimated the Marcellus Shale could contain as much as 50 trillion cubic feet of recoverable gas, a number so astonishing that it triggered a land rush.

Engelder later increased his estimate to 363 Tcf and then nearly 450 Tcf, based upon actual production data.

The Marcellus Shale Coalition argues that the USGS numbers are low because its methodology discounts undeveloped parts of the shale.

"Hence, during early development of a gas shale play when there is very little production data anyway, the USGS numbers will be commensurately low as is the case now," said Travis Windle, a coalition spokesman.

USGS says there are many reasons that assessments might disagree -- the use of different data, or proprietary information. Doug Duncan, associate program coordinator of the USGS's energy resources program, said the agency only makes its assessment after observing reliable production data over at least a 30-month period.

"We don't have a preconceived idea about what kind of answer we want to get," he said. "We try to get it right."

Without mentioning other estimates, the USGS asserted its primacy on the issue in its announcement Tuesday.

"USGS is the only provider of publicly available estimates of undiscovered technically recoverable oil and gas resources of onshore lands and offshore state waters," it said.

Copyright (c) 2011 The Philadelphia Inquirer

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The Great Crew Change: 'Wolf Cries' or Reality?

- The Great Crew Change: 'Wolf Cries' or Reality?

Friday, August 12, 2011
Rigzone Staff
by Barbara Saunders

For more than a decade, the Great Crew Change has generated deep concern among many – and skepticism among some – in the oil and natural gas industry.

Much like the old story about the boy who cried "wolf" so many times that nobody would listen when the wolf finally was at the door, statistics confirm that the post-World War II "baby boom" generation is at the retirement door.

What remains to be seen is how well the industry on the whole heeded the "wolf cries" to usher in a well-trained new generation of both technical professionals and rig labor, the two areas of greatest perceived need.

Are We There Yet?

Although there is some controversy about whether the Great Crew Change will be all that sweeping, the age statistics are indeed alarming. According to Pete Stark, VP of industry relations for IHS, the peak age for oil and gas technical personnel has risen from 43 in the year 2000 to 50 in 2006. The peak age is expected to be 60 in 2012.

Another way of looking at the situation is about half of the industry will be retiring within the next 10 years.

Retirements in progress mean that "the big crew change is happening now and will be mostly over in five years," according to a 2011 study by Schlumberger Business Consulting. The study projects that by 2014, the inflow of younger petro-technical professionals (PTPs) will be only about 17,000, compared with roughly 22,000 experienced PTPs who are expected to leave by then, for a net shortfall of 5,000.

Other key findings of the study included:

• Demand for graduates is recovering and outpacing the pessimistic forecasts of a year ago. Recruitment targets for technical staff in 2011 are 15 percent higher than levels planned in 2009. National oil companies (NOCs), independents and majors all plan to intensify recruitment efforts from 2011 onwards.
• Universities appear to be on track to provide the oil and gas industry with sufficient graduates in geosciences and petroleum engineering, but supply from "quality universities will remain tight."
• Recruitment targets for PTPs in mid-career are soaring, with NOCs and majors reporting the highest rates of increase. "The labor market for experienced PTPs will be tight over the next three years, resulting in the poaching of staff, salary escalation and higher attrition rates," the study said, continuing: "These staffing issues will have serious consequences on projects and production capacity. Companies contributing to the 2010 survey reported that staffing issues will delay projects and may drive decision makers to take more risk."

Mentoring Key

Meanwhile, the American Association of Petroleum Geologists (AAPG) teamed with the recruiting firm Working Smart in a survey this past May of technical oil company professionals age 55 and over. Of those who responded, the average intended retirement age was 65, with only 23 percent seeking to work beyond retirement age.

Many respondents felt that mentoring younger staff is a key factor in reducing adverse effects of the great crew change. The survey showed that 77 percent of respondents were currently mentoring younger staff.

Mario Carminatti, exploration manager for Brazil's national oil company Petrobras, told an industry conference that 42 percent of the company's geologists and geophysicists have less than five years of experience. "We are countering this by increasing the number of senior geoscientists and even retired professionals who operate as mentors to the younger generation," Carminatti said.

J. Ford Brett, managing director of PetroSkills, says that the price tag could be in the tens of billions for having less experienced technical personnel. If the looming demographics result in approximately 20 percent of the industry's personnel having fewer than five years' experience, Brett calculates that it's reasonable to expect a 20 percent reduction in performance across the board. "To put this into focus, in 2006 the industry spent about U.S. $170 billion on E&P. A 20 percent reduction in performance correlates with an economic cost of approximately U.S. $35 billion," Brett stated in an article for the Society of Petroleum Engineers' Talent & Technology
publication.

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About to Buck The Trend

- About to Buck The Trend

Friday, August 05, 2011
Rigzone Staff
by Trey Cowan

Looking back to the second quarter, the jackup dayrate trend is down 2 percent to $106k/day versus 1Q11 rates. Floaters on the other hand did not experience any change in pricing from one quarter to the next, holding steady at $378k/day.

Commodity jackup dayrates suffered the most, down 5.6 percent to an average of $70k/day during 2Q. Standard jackup rates fell 2.2 percent to 96k/day and premium jackup rigs fell at the slowest pace of 1.6 percent to $135k/day, all on a quarter-over-quarter basis.

While the chart shows an ongoing downward trend, the future actually looks good for jackup rate improvement, based on recent activity. Jackup rates for July improved 1 percent to $107k/day, up $1,000 from June's average of $106k/day. When looking at capabilities and water depths served, premium jackups grew at a faster pace (3 percent to 139k/day) during the month. We continue to hear commentary pointing to a bifurcated marketplace with higher demand for premium rigs relative to standard 300' rigs or commodity rigs that serve in 250' waters or less.

Based on contracts already booked, dayrates for premium jackups are likely to improve 8 percent during the second half of 2011. This compares favorably to 4 percent overall growth in dayrates anticipated for jackups, which translates into an average increase of 5,000/day for jackups during the second half of 2011.

Looking solely at the rig counts, global offshore activity improved during the month of July when compared to June. There are now 543 rigs under contract around the world, up ten from last month (as both floaters and jackups added 5 rigs-a-piece to their respective rolls). The overall fleet size also grew during the month by a net five rigs (3 floaters and 2 jackups) to 756 rigs marketed globally.

Permitting in the Gulf of Mexico Year to Date

In water depths of less than 500 feet, there have been 41 "New Well" permits issued by the BOEMRE year-to-date. "Revised New Well" permits number 64 that have been issued since January 3rd 2011. The average pace for New Well and Revised New Well permit approvals appears to be 15 per month in shallow waters. In water depths of more than 500 feet there have been 12 New Well permits issued by the BOEMRE year-to-date. Since Jan. 3, 52 Revised New Well permits have been issued by the BOEMRE. Thus, the average pace for New Well and Revised New Well permit approvals for deepwater projects is 9 per month.

To put all this into perspective, combine the two averages together and you see that the BOEMRE is averaging 24 approvals per month. This is an anemic pace considering that the inspection staff of the BOEMRE is ~50 individuals and growing. That means at the current staff levels the BOEMRE's inspectors are approving either a "New Well" or "Revised New Well" at a pace of one every two months.

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Blake Receives Contract in the Gulf of Mexico

- Blake Receives Contract in the Gulf of Mexico

Tuesday, June 07, 2011
Blake International USA Rigs

Blake International recently received a three-well contract for the rig Blake 1006, a 1000 horsepower self-erecting platform rig. W&T Offshore, Inc. is scheduled to commence mobilization to South Timbalier 316 in mid-July 2011. The rig is being made ready at Blake International's 44-acre yard and fabrication facility in Houma, Louisiana.

Blake International USA Rigs is a privately-held offshore drilling contractor with a fleet of nine platform rigs that work in both the Mexican and U.S. waters of the Gulf of Mexico.

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The Shale Gas Boom: Energy Exploration in Carolina

- The Shale Gas Boom: Energy Exploration in Carolina

Monday, May 23, 2011
The Fayetteville Observer, Fayetteville, North Car
by Michael Futch, The Fayetteville Observer, N.C.

For now, state geologists are finished with their research in central North Carolina.

After studying 59,000 acres in the Deep River basin for 15 years, they have concluded that Lee, Chatham and Moore counties could produce enough natural gas from shale to make North Carolina self-sufficient for 40 years at current levels of consumption.

"That's what we think," said Kenneth Taylor, chief of the N.C. Geological Survey. "We could become a net exporter."

The geologists recently sent their findings to the U.S. Geological Survey in Denver, which is being asked to assess the full potential of the Sanford sub-basin, a shale formation near the center of the Deep River basin. The sub-basin has the potential to hold the state's richest natural gas deposits, though exploration will continue elsewhere in the state.

Taylor said an assessment and fact sheet is expected from the U.S. Geological Survey by July.

The assessment would then be made available to energy companies eager to explore and begin commercial gas production in the sub-basin.

The findings could one day lead to riches for landowners -- many of whom already have signed land-lease deals with the energy companies -- and huge revenues for the state.

"The benefits from revenues that the state of North Carolina would gain from a productive natural gas industry would be immeasurable,...

Dudley: The Lessons of Deepwater Horizon

Dudley: The Lessons of Deepwater Horizon

Wednesday, April 20, 2011
The Wall Street Journal
by Bob Dudley

A year ago [Wednesday, April 20], the Deepwater Horizon drilling rig exploded, killing 11 men and causing the largest offshore oil spill in U.S. history. At BP we regret that the accident happened and the impact it has had on the environment of the Gulf Coast and people living there.

From the start, we committed to pay all legitimate claims and work to restore the damage caused by the oil spill. We pledged to cooperate fully with all investigations into the cause of the accident. Finally, we said we would work to embed the lessons learned into the fabric of our organization and share those lessons with our industry colleagues and government regulators.

One year on, where do we stand with regard to those commitments?

First, we are paying claims. BP set aside $20 billion in a fund to compensate individuals, businesses and governments that were impacted, as well as for natural resource damages. So far, more than $5 billion in claims and other payments has been paid out of that fund.

In cooperation with federal and state government scientists, we're conducting a thorough assessment of the spill's environmental impact.

We've created a $500 million fund to support further scientific research on the spill's long-term impact. And we're supporting efforts by the region's governors to restore key industries, such as tourism and seafood.

But we know that we must do more than make good on the economic losses from the spill. BP has to change as well. The steps we have taken so far include:

• Creating a central safety and operational-risk organization reporting directly to me. This organization has the mandate and resources to drive safe, reliable operations that comply with regulations, and it has the authority to intervene in our operations anywhere in the world. We are also linking the management of employees' performance and reward directly to safety and to compliance with BP's standards.
• We will not use rigs on our projects that do not conform to our standards. We have either turned away rigs or are negotiating for modifications to particular rigs that will bring them up to our standards.

In the last few months, we have shut down several platforms to request modifications consistent with BP's standards. One of these was our Holstein platform in the Gulf of Mexico, which was shut down after we discovered incorrect specifications for some bolts.
BP engineers and technicians have traveled to Russia, Angola, Australia, Brazil and elsewhere to share what we've learned about the accident with government policy makers, regulators, academics, industry partners and the general public.

• We have also asked recently retired Adm. Frank "Skip" Bowman to join our board of directors. A former head of the U.S. nuclear navy, he has spent his entire career dealing with safety-related issues in a sector admired for its safety record.

Changing BP alone, however, is not enough. There are lessons from Deepwater Horizon for the entire industry. As the commission appointed by President [Barack] Obama to investigate the accident concluded, "Deepwater energy exploration and production, particularly at the frontiers of experience, involve risks for which neither industry nor government has been adequately prepared, but for which they can and must be prepared in the future."

In conjunction with the other major oil and gas companies that operate in the U.S., BP has joined the Marine Well Containment Corporation, a specially created entity designed to maintain preparedness for any future spills in the Gulf of Mexico. We've donated specialized equipment developed during last summer's containment effort, so that all of industry is better prepared.

Looking ahead, it is important to keep in mind that the global demand for energy will rise inexorably in coming decades--nearly 40% by 2030, according to BP estimates. That's roughly twice the current energy consumption of the entire U.S. Even as energy companies develop alternatives, the world will still need a large volume of oil.

Given the maturity of many existing fields, much of that oil will need to come from newer sources, such as the deep water. Right now, around 7% of the world's oil supplies are coming from the deep water, a total we expect will rise to nearly 10% by the end of this decade. That means we must have better safety technology, more effective equipment and the capability to deal with a blowout in the deep water.

BP gets it. BP is changing. We are committed to working together with our industry colleagues and government regulators to ensure a safer, stronger energy future.

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Analysis: Another Look at The Bird

Analysis: Another Look at The Bird

Thursday, April 14, 2011
Rigzone Staff
by Trey Cowan

In a January 5, 2011 article, we dubbed the Dow Jones Transportation Index (DJT) the canary in the coal mine based on its predictive properties relative to oil price declines.

Par for the course, the recent decline in WTI crude prices was in fact preceded by a pullback in the DJT last week. Specifically, the DJT fell 3% for the week ending April 8th. Crude futures were advancing last week (improving 4%). With the last two daily declines, oil prices are now 6% below their recent peak closing price of $112.73, set last Friday on April 8th.

Given their lagging tendency, relative to the Dow Jones Transportation Index, we would expect this recent correction in oil prices to find its bottom soon.

Why this pattern occurs is really no mystery. The transportation markets are a leading indicator of the market's perception on economic activity. Higher fuel prices at some point curtail activity levels across the board, effectively diminishing demand for not just fuel but all goods and services. Should we see a dramatic pullback in the transportation index beyond the recent low set in March, barring other factors extant to macroeconomic conditions, then we would expect oil to retrace back to levels of $90 per barrel seen at onset of the year.

We are already starting to see signs that higher gasoline prices are causing a shift in consumer behavior. At the pump, gas station owners have begun to report that the frequency of customers and volume of gasoline purchases is dropping on a weekly basis. The numbers support these claims as the MasterCard Spending Pulse, which tracks sales at 140,000 gas stations, reports gasoline consumption has been falling for the past 6 weeks straight.

Back in January we warned of this phenomenon regarding demand destruction in our article "Panning Out". Here is what we said:
There is a real threshold that causes consumers to modify their driving patterns (i.e. a shrinking discretionary budget giving way to a reduction in miles driven) that could stall the current economic recovery underway.

Assuming that the average amount of annual discretionary spent per US household is approximately $1,000, then a $0.75 per gallon increase in gas prices would absorb practically all the discretionary budget for a two-car family. Using average 2010 gasoline prices as the base, this would imply that US drivers will see their discretionary budgets evaporate once gasoline prices top $3.50 per gallon.

As demonstrated in the following chart, you can see that what is occurring today corresponds with our January prediction.

Sustained energy demand destruction, in our opinion, would likely spread to other areas of the economy. So, while government officials look to higher energy prices as a means to spur innovation in alternative energy sources, the trade-off could be a derailment of the current economic recovery. While we do not have a calamity or supply disruption that at other times would merit tapping the Strategic Petroleum Reserve, a whole-hearted dismissal of utilizing this tool puts the United States' energy policy in a game of chicken with our economic recovery.

Saudi Arabia steady amid the turbulence

Saudi Arabia steady amid the turbulence

Berna Bayazitglu and Sergei Voloboev

Apr 5, 2011

The King Abdullah Financial District takes shape in the centre of Riyadh. Waseem Obaidi / Bloomberg News

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The King Abdullah Financial District takes shape in the centre of Riyadh. Waseem Obaidi / Bloomberg News

Recent events in the Middle East have caused concern in some quarters about increased risks to Saudi Arabia's economic outlook.

While apprehensions in the region may dampen confidence in the next few months, Credit Suisse forecasts that Saudi Arabia will enjoy robust real GDP growth in the next two years.
Fuelled by surging oil prices, higher crude output and increases in government and consumer spending, Credit Suisse expects Saudi Arabia's real GDP to grow 5.7 per cent this year and 4.9 per cent next year.

After the impact of the Libyan turmoil on oil markets, crude prices surged towards US$120 a barrel, prompting Saudi Arabia to offer reassurances that it would step in to replace the loss of Libyan exports.

The rise in global oil prices and increased crude output will clearly benefit the Saudi economy. We see Saudi oil output posting large gains this year, with production rising 10.4 per cent to 9 million barrels per day (bpd).

Consequently, the oil sector will make a greater contribution to the kingdom's overall economic growth. According to our forecast, Saudi Arabia's oil GDP will grow 7.1 per cent this year and 4.6 per cent next year.

We also expect public sector spending to grow more strongly this year as authorities further boost social payments. The government's $36 billion (Dh132.22bn) social support package, announced in February, includes the first unemployment benefits, as well as investment in housing and extensions of salary increases for public sector workers.

Last month, King Abdullah announced another package of social spending, worth $133.32bn.

These packages complement the kingdom's ninth five-year development plan, a $385bn investment that targets key industrial and infrastructure projects such as the economic and industrial cities.

Moreover, development projects are aimed at drawing in private investment to fuel the expansion of non-crude activities to try to diversify away from oil, while also creating jobs to meet the needs of the kingdom's fast-growing young population.

This huge spending push by the Saudi Arabian government will further bolster activity in the non-oil sector of the economy. In our view, non-crude GDP growth will accelerate to 5.3 per cent this year and hold at nearly 5 per cent next year.

The kingdom's fiscal balance will be given a lift from surging crude prices. Based on an average Brent oil price assumption of $110 a barrel, our baseline forecast, we see government revenues leaping 47.9 per cent this year to 1.15 trillion riyals (Dh1.12tn), 53.2 per cent of GDP.

Based on our projection of an average crude output of 9 million bpd, we expect oil revenues to climb 51.5 per cent this year to 1.05tn riyals. We also expect non-oil revenues to increase by 17.7 per cent, given the pick-up in economic activity in the kingdom.

Robust revenue collections, particularly from oil, will help Saudi Arabia to offset the added burden of increased government spending from the social support packages and the continuation of the kingdom's five-year development plan.

According to our projection, government expenditure will grow 25.2 per cent this year to 811.1bn riyals (37.5 per cent of GDP).

Saudi Arabia is likely to tap its huge foreign-asset holdings to cover part of the near-term spending increases this year. Based on this, we forecast the fiscal surplus to increase to 339bn riyals. If oil prices average a higher $120 a barrel, this will result in a fiscal surplus of 410.8bn riyals.

We see Saudi Arabia's fiscal balance posting another large surplus next year of 276.8bn riyals, provided oil prices remain at $110 a barrel on average.

We see headline inflation edging up to an average annual rate of 6 per cent this year. Although annualised consumer price index inflation edged down for the third straight month in January, to 5.3 per cent, price pressures will continue, fuelled by higher prices for food and housing as well as a pickup in domestic demand.

The government's social support package is likely to add to inflation by bolstering demand. However, Saudi Arabian authorities are likely to implement subsidies and other price control measures if inflation begins to climb significantly higher.

In our view, monetary policy will remain accommodative to help the recovery gain further momentum and boost lending, with the Saudi Arabian Monetary Authority awaiting a cue from the US Federal Reserve before raising rates.

Berna Bayazitoglu is the head of macroeconomic research for emerging markets in eastern Europe, the Middle East and Africa at Credit Suisse, and Sergei Voloboev the director within the bank's emerging market economics research group