Hold on to your billfold: Shale drilling giant CEO expects prices to go up


Important Takeaways:

  • Oil could hit $150, sending ‘shock through system,’ says top shale CEO
  • That’s Doug Lawler, chief executive of Continental Resources, the shale-drilling giant controlled by billionaire Harold Hamm, telling Bloomberg News on Monday that crude prices are set to remain elevated and could press to the $120- to $150-a-barrel range without new production.
  • More price pressure is coming, he said, unless policies are put in place to encourage more output.
  • West Texas Intermediate crude CL00, 0.00% CL.1, 0.01%, the U.S. benchmark, edged back below $90 a barrel on Monday but remains up more than 34% from its 52-week low of $66.74 hit on March 17.
  • Lawler said he thought oil “absolutely” would hit the $100-a-barrel threshold and that he expects to see continued volatility in the $80- to $100-a-barrel price environment.

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Oklahoma regulator issues new regional protocol to curb earthquakes

FILE PHOTO - An oil pumpjack is seen in Velma, Oklahoma U.S. April 7, 2016. REUTERS/Luc Cohen

By Liz Hampton

HOUSTON (Reuters) – Oklahoma’s oil and gas regulator on Tuesday released new requirements aimed at reducing the risk of earthquakes from hydraulic fracturing in shale regions in central and southern areas of the state.

The new protocol, issued by the Oklahoma Corporation Commission (OCC), comes in addition to existing rules that apply to a 15,000 square mile area targeted by the regulator for its high rate of temblors from wastewater injection.

The new requirements are aimed at completion activities in the SCOOP and STACK shale producing areas, where drilling is picking up as U.S. oil prices have climbed above $60 a barrel this year.

The state in recent years saw a surge in earthquakes due to the injection of saltwater produced from oil and gas drilling activities into disposal wells. In 2015, there were 903 magnitude 3.0 or higher earthquakes, versus just 41 temblors of that intensity five years earlier, according to Oklahoma Geological Survey data.

Under the new rules, operators will be required to have access to a seismic array that gives real-time information on earthquakes. The rules also lower the threshold for which an operator must take action to a magnitude 2.0 quake from 2.5, and require some operators to pause operations for six hours in the event of a 2.5 magnitude quake.

Previously, operators were only required to pause operations for a magnitude 3.0 or higher quake.

There have been 80 earthquakes of magnitude 2.5 or greater in the SCOOP and STACK area of Oklahoma since December 2016, Matt Skinner, public information manager for the Oklahoma Corporation Commission, said on Tuesday.

“Ultimately, the goal is to have enough information to develop plans that will virtually eliminate the risk of a felt earthquake from a well completion operation in the SCOOP and STACK,” said Jeremy Boak, director of the Oklahoma Geological Survey, in a release. Earthquakes that fall below 2.5 magnitude are usually not felt but can be measured on seismographs.

Well completion activities are less likely to produce induced earthquakes than wastewater injection, geologists said in a release issued by the OCC on Tuesday.

The SCOOP and STACK have far less water associated with drilling activities than Oklahoma’s Arbuckle formation, which was linked to a high rate of temblors from wastewater injection, they added.

The jump in earthquakes has drawn increased attention in recent years, particularly after some larger quakes have occurred near the massive oil storage hub of Cushing, Oklahoma.

(Reporting by Liz Hampton; Editing by Tom Brown)

Leaner and meaner: U.S. shale greater threat to OPEC after oil price war

Pumpjacks and other infrastructure for producing oil dot fields outside of Watford City, North Dakota,

By Catherine Ngai and Ernest Scheyder

NEW YORK/HOUSTON (Reuters) – In a corner of the prolific Bakken shale play in North Dakota, oil companies can now pump crude at a price almost as low as that enjoyed by OPEC giants Iran and Iraq.

Until a few years ago it was unprofitable to produce oil from shale in the United States. But the steep slide in costs has U.S. shale operators poised to capitalize on Wednesday’s decision by the Organization of the Petroleum Exporting Countries to cap output for the first time in eight years.

In effect, even as OPEC has decided to reduce output to try to boost prices, that may end up being undermined by a potential increase in U.S. production.

OPEC ministers agreed to reduce production by around 1.2 million barrels per day, bringing an end to a free-for-all drilling era that saw global oil prices fall by more than half in the last two years.

In shale fields from Texas to North Dakota, production costs have roughly halved since 2014, when Saudi Arabia signaled a price war in an attempt to drive higher-cost shale producers out of the market.

Rather than killing the U.S. shale industry, the ensuing two-year price war made shale a stronger rival, even in the current low-price environment.

In Dunn County, North Dakota, there are around 2,000 square miles where the cost to produce Bakken shale is $15 a barrel and falling, according to Lynn Helms, head of the state’s Department of Mineral Resources.

“The success in Dunn County has been fantastic,” said Ron Ness, president of the North Dakota Petroleum Council.

Dunn County’s cost is about the same as Iran’s, and a little higher than Iraq’s. Dunn County produces about 200,000 barrels of oil per day, about a fifth of daily production in the state.

It is North Dakota’s sweet spot because it boasts the lowest costs in the state, yet improved technology and drilling techniques have boosted efficiency for the whole state and the entire U.S. oil industry.

The breakeven cost per barrel, on average, to produce Bakken shale at the wellhead has fallen to $29.44 in 2016 from $59.03 in 2014, according to consultancy Rystad Energy. It added that in terms of wellhead prices, Bakken is the most competitive of major U.S. shale plays.

Wood Mackenzie said technology advances should further reduce breakeven points.

Landlocked Bakken producers still need a substantially higher international price than their breakeven cost to make a profit, since they pay more to transport crude to market than producers in most other U.S. regions.

International oil prices of $45 a barrel are enough for some Bakken producers to profit, Ness said, and $55 would encourage production growth.

Benchmark Brent futures plummeted from nearly $116 a barrel in mid-2014 to just $27 earlier this year. Prices recovered to nearly $46 before the OPEC deal. That was still too low for members of the OPEC, whose state budgets depend on petrodollar revenues that plummeted during the price war.

OPEC has been concerned that an output cut would encourage a quick response from U.S. shale producers, who have slashed costs and have been steadily adding drilling rigs.

“Right now, OPEC understands we’re in a push-and-pull experiment with the United States,” said Michael Tran, director of energy strategy at RBC Capital Markets in New York.

“Two years ago, we thought prices hovering around $50 to $60 meant that non-OPEC production growth would end. But U.S. production came back stronger.”

In its last earnings call, Hess Corp said it has improved its cost performance in the Bakken, with well costs falling and initial production rates rising, though it did not give more details.

“Everybody is drilling wells faster and completing them better,” said Mike Breard, an energy stock analyst at Hodges Capital Management in Dallas. “It’s not just a Bakken phenomenon.”

Breard said he prefers shale stocks in the Permian basin in Texas, where he is expecting more big gains in production next year. He is eyeing firms such as Parsley Energy Inc, Ring Energy Inc and Matador Resources Co.

Oil companies are already investing big money to benefit from shale’s resurgence. Tesoro Corp recently snapped up Western Refining Inc in a $4 billion deal to bulk up its exposure in Texas.

Separately, trading firm Castleton Commodities International LLC bought more than $1 billion in assets from Anadarko Petroleum Corp to increase its stake in East Texas.

Occidental Petroleum Corp’s top executive recently said that company has enjoyed steady improvement in well productivity and lower drilling and completion costs in the Permian Basin.

“Simply put, we can deliver more production with fewer wells,” Vicki Hollub, the company’s president and chief executive, told analysts on a call.

(Additional reporting by Lewis Krauskopf in New York; editing by Simon Webb and Marguerita Choy)