The Shale Daily Update – 6.1.2020

Save America’s Oil and Gas Industry
Ukraine, Carpathians night photo of the European oil rig rocking the pump on the background of the Milky Way Galaxy in the universe. Symbol of energy and ecology of planet Earth

What You Should Know About Oil and Gas Today

The State of Play

Welcome to June, everyone, and mob rule in America’s major cities. Amid all of the social unrest and lack of state, local and national leadership, America’s oil and gas industry appears set on a path to recovery, although it will likely be a much leaner and compact business sector coming out of this crisis than it was going into it.

First, some basics:

  • The price for WTI is sitting at about $34.70 as I compile this piece this morning. Prices are softening in early trading amid all of the uncertainty being created by the nationwide riots.
  • The Enverus Daily Rig Count has reached another all-time low of 317 active rigs nationally, although the pace of the reduction in the count has slowed over the past couple of weeks.
  • The Primary Vision weekly count of active frac spreads now sits at 53, an uptick from the all-time low of 45 at the first of last week. But that’s down from the the January 20 high of 358.

In the news, CNBC reports that Russia and Saudi Arabia have made progress towards a compromise agreement to extend the deeper, 10 million bopd cuts in production under the OPEC+ deal. That level of cuts is scheduled to expire as of July 1, rolling over to a reduction of about 6.8 million bopd for the remainder of 2020.

Saudi Arabia and Russia, the largest players in the OPEC+ deal, are currently working on a compromise that would extend the deeper cuts for an additional “month or two,” according to the report. Hey, every little bit helps.

To give you an idea of how deeply the upstream sector of the business has scaled back operations, E&E Daily notes this morning that, before this current bust, the lowest level of active rigs ever recorded by the Baker Hughes rig count had been 404 in mid-2016. On Friday, the count came in at 301. Baker Hughes has been publishing its rig count since 1949. Ouch.

A big report in today’s Wall Street Journal details the negative impacts the COVID-19 pandemic is having on the U.S. natural gas and LNG exports business. Two of the most significant impacts have been:

  • Delays in several proposed new LNG export facilities; and
  • Cancellations of billions of dollars in investments in the building of new LNG tanker ships.

Among the delayed LNG export facilities is the project planned for Port Arthur by Sempra Energy, which put off making a final investment decision on that facility last month. That impacts Saudi Aramco, which was set to purchase a 25% ownership stake in the project, and committed to move 5 million tons of LNG through it on an annual basis.

Saudi Aramco also recently shelved another plan to invest $2.5 billion in the building of up to a dozen new LNG tankers amid falling global LNG demand. The U.S. Energy Information Administration said last week that it expects demand to continue to be depressed through the summer before rebounding in the fall.

Meanwhile, the International Energy Agency issued a new report that details what it calls the “biggest fall in global energy investment in history,” with the U.S. shale sector being the hardest-hit of all. “The historic plunge in global energy investment is deeply troubling for many reasons,” IEA Executive Director Dr. Fatih Birol said. “It means lost jobs and economic opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers.”

The report’s key findings include a drop of $250 billion in global oil and gas capital investment in 2020 as compared to 2019, a loss of investment that will have major supply impacts for years to come. Overall, the report projects a spending reduction in the oil and gas sector of roughly $1 trillion. The report is worth a read, but be sure to have a bottle of Pepto Bismol handy as you go through it.

Sergio Chapa has a terrific report in today’s Houston Chronicle detailing efforts by workers to keep Texas port facilities safe amid the COVID-19 pandemic. Definitely worth a read.

Mr. Chapa also has a somewhat depressing report today detailing the fact that just a single producer – EP Energy – filed a single drilling permit application in the once-prolific Eagle Ford Shale region of South Texas during the week of May 20-26. In a bit of irony, EP Energy filed for chapter 11 bankruptcy protection last October.

Meanwhile, as states like Texas, Louisiana and Oklahoma are looking for ways to reduce the regulatory burden on the struggling oil and gas industry, Pennsylvania Governor Tom Wolf is advancing a proposed new regulation that would create a massive new emissions regulatory regime on wells in his state. Some state governors just cannot stand prosperity.

That’s all for today.

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