Bakken Shale – North Dakota/Montana
Production continues to increase from the Bakken Shale play, even though the rig count has remained essentially unchanged since July 2017. This increase in production can largely be attributed to the opening of the Dakota Access Pipeline during the third quarter of 2017, which allows up to 400,000 barrels of oil per day (that had previously been transported by truck or rail) to move far more efficiently to market via pipeline.
Overall, though, the strengthening of the price for crude oil since last summer has not resulted in a meaningful uptick in drilling in the Bakken. As so, many producers have focused new drilling opportunities on more economical projects in the Permian Basin and the Eagle Ford Shale. The decision by Oasis Petroleum Inc., one of the largest producers in the Bakken, to acquire a 22,000-acre position in the Permian’s Delaware Basin in December is illustrative of that preferred capital flow to the Permian.
Denver/Julesburg (DJ) Basin – Colorado
As in the Bakken, the rig count in the DJ Basin has remained static since last summer, in spite of the significant oil price increase during that time. One reason why is that the Basin’s two biggest players (Noble Energy Inc. and Anadarko Petroleum Corp.) are also major producers in the Permian Basin and the Eagle Ford Shale region. The more attractive rates of return on projects in those other areas are attracting a larger share of those companies’ capital dollars.
In January, Noble Midstream Partners, LP and Greenfield Midstream, LLC announced the acquisition of gathering assets in the DJ Basin for $638.5 million via a joint venture called Black Diamond Gathering LLC. Black Diamond purchased the assets of Saddle Butte Rockies Midstream, LLC, along with some of its subsidiaries. The assets consist of roughly 160 miles of pipeline, 300,000 barrels of oil per day of delivery capacity, and approximately 210,000 barrels of crude oil storage.
Permian Basin – Texas/New Mexico
The Permian Basin is in a strong boom cycle right now, as stronger oil prices — combined with the best well economics available in any shale play — make the region the most attractive play in the U.S. for capital investment.
In addition to the announcement by Pioneer that it is selling all other assets in order to focus its drilling efforts exclusively in the Permian and the recent Oasis Petroleum acquisition in the Delaware Basin, Halcón Resources Corporation announced in early February an acquisition of more than 20,000 net acres in Reeves County that would add to its already sizable leasehold in the Delaware Basin. Today, the Permian is home to more than 40 percent of all active drilling rigs in the United States, and the EIA projects that total production from the Basin will surpass three million barrels of oil per day by the end of 2018.
Eagle Ford Shale – Texas
After several months of stagnation, the DrillingInfo.com rig count for the Eagle Ford Shale rose by 10 rigs during the first two weeks of February. This is, in part, due to the stronger oil prices in early 2018, and is also likely a signal that the boom in the Permian is likely reaching a peak point.
The announcement in early February by Pioneer Natural Resources that it was selling all other assets in order to focus its business entirely on the Permian Basin was big news in the Eagle Ford (given that the company owns more than 70,000 leasehold acres in the play) and has been one of the most active drillers in the Eagle Ford since the early days of this shale play’s development. It will be interesting to see which company steps up to purchase Pioneer’s Eagle Ford assets. Such a large acquisition — if it all sold together as a package — will command a multibillion-dollar price tag and require a purchaser that is well capitalized.
Marcellus Shale – Pennsylvania/West Virginia/Ohio
In mid-January, the Federal Energy Regulatory Commission (FERC) issued an Order under section 7(c) of the Natural Gas Act approving construction of the PennEast Pipeline. The 120-mile pipeline will carry Marcellus natural gas from Dallas to Pennington, N.J., where it will interconnect with the Transcontinental Pipeline system. Along the way, PennEast will provide natural gas supply to 24 municipalities in Pennsylvania and 6 in New Jersey, alleviating supply constraints that have resulted in increased utility bills in recent years. Protesters and politicians have held up this (and other) pipeline projects for partisan political reasons.
Despite rising demand for natural gas from LNG exports and the power generation sector, the U.S. Energy Information Administration (EIA) issued a new report in late January forecasting lower natural gas prices for the remainder of 2018 and through 2019, due mostly to rising production levels in the Marcellus and Utica Shale Basins.
Haynesville Shale – Louisiana/East Texas
Drilling activity in the Haynesville has staged a significant comeback over the last six months, as the rig count in the area has risen to over 40, a welcome change from the depths of the downturn when as few as a dozen rigs could be found working in the region. The opening of Cheniere Energy Inc.’s LNG export facility, and the proximity of the Haynesville to it, has played a significant role in that increased activity, even though it opened at a time of intractably low commodity prices.
The U.S. is already a net exporter of natural gas, and the scheduled opening of three new LNG export facilities in 2018 and three or four more planned in 2019 hold out hope that rising demand could ultimately result in a stronger commodity price, which would accommodate higher levels of natural gas drilling activity. Until that happens, we can expect the current status quo to continue.
SCOOP/STACK Play – Oklahoma
The big threat to the ongoing boom in the SCOOP/STACK area is this session of the Oklahoma state legislature, where a third increase in three years of the state’s oil and gas Gross Production Tax (GPT) rates is under consideration. As this issue of SHALE Magazine went to press, members of the House and Senate were considering several competing alternatives to close the state’s persistent budget gap, at least two of which would increase the GPT rates.
This ongoing uncertainty on tax rates diminishes the ability of oil and gas producers to properly plan their business and allocate capital. A third rate increase in three years would likely result in a reallocation of some portion of industry capital currently planned for Oklahoma’s SCOOP/STACK shale plays to drilling projects in other states.
About the author: David Blackmon is the Editor of SHALE Oil & Gas Business Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles — the last 22 years engaging in public policy issues at the state and national levels. Contact David Blackmon at [email protected].