The Shale Daily Update – 6.17.2020

A new outbreak of COVID-19 could be taking place in Beijing. City officials have now shut down schools in their efforts to contain the outbreak.
Crude oil crisis caused by Coronavirus. Downward graph of crude oil value.; 3D; 3D Illustration

What You Should Know About Oil and Gas Today

The Big Story

Well, it hasn’t become a real big story yet, and hopefully it won’t, but everyone needs to note the news coming out of Beijing, China, of a new outbreak of COVID-19 taking place there. Bloomberg reports this morning that city officials have now shut down schools in their efforts to contain the outbreak.

“China’s shuttering of Beijing’s schools is a significant setback to the country’s recovery from the Covid-19 virus, and it could be a real blow to the petroleum demand recovery outlook, which had been improving,” said John Kilduff, a partner at Again Capital LLC.

Thanks to the dramatic increase in U.S. oil production in the last decade, China now ranks as the largest importer of crude on the planet. Beijing, a thriving, industrialized city of more than 21 million, creates a great deal of that country’s oil demand. Obviously, a lockdown of that city and the area surrounding it would create some upheaval in oil markets.

So, not a huge deal yet if officials are able to contain the outbreak without resorting to lockdown measures like those seen in Wuhan Province early this year, but definitely a situation that merits monitoring.

Let’s move onto the next Big Story…

The Texas Railroad Commission held a hearing on the long-lingering issue of flaring of natural gas on Tuesday. Commissioners heard from three panels: One made up of representatives of the environmental community, one made up of producers and one made up of industry trade associations.

Speaking on behalf of the Environmental Defense Fund (EDF), Colin Leyden, Director, Regulatory and Legislative Affairs, said, “Operators in this state have sent a trillion cubic feet of natural gas up in smoke since 2013, enough to meet the yearly needs of every home in Texas three times over. The unnecessary waste and pollution from routine flaring is an affront to the values we all hold true. That’s why you hear everyone from mineral owners, investors and environmentalists, to oil and gas companies themselves, calling for an end to flaring. The commission should listen to these calls and set a firm goal for an end to routine flaring by 2025.”

As reported by the Midland Reporter Telegram, Stephanie Reed, senior vice president, corporate development, land and midstream with Parsley Energy, said her company’s success in reducing flaring was not by accident. Reducing routine flaring requires long-term planning, including investing millions in takeaway infrastructure. The company sets corporate goals and ties compensation to meeting those goals, she said. Parsley has also created more transparency around its flaring volumes both internally and externally. Daily reports issued companywide detail flaring events, what led to those events and what plans are in place to ensure such events don’t happen again, she said.

Ben Shepperd, president of the Permian Basin Petroleum Association (PBPA), pointed out the fact that $4.5 billion in pipelines are expected to come into service over the next year, which will help reduce flaring as more wells are hooked up to pipeline infrastructure. “We did not get here overnight,” he said. “Over 10 years, production in the Permian Basin has more than quadrupled, and infrastructure has been strained under that growth.” Shepperd added that PBPA “believes economics and environmental stewardship can go hand-in-hand. This set of recommendations is the first step in changing the culture in the industry with regards to flaring.”

The Commission adjourned without taking any action on the matter, which has become a major issue in every U.S. shale play over the past 20 years without the industry and regulators being able to come up with any real solutions to the problem.

In other news…

One day after British major BP announced it would be taking a $17 billion asset write-down, Reuters reports that French service company giant Schlumberger plans to book a $1.4 billion charge to its earnings to account for an accelerated restructuring plan. Speaking at an industry conference, Chief Executive Officer Olivier Le Peuch also outlined the company’s plans to create a New Energy group that will “focus on marketing low-carbon or carbon-neutral technology.”

Chesapeake Watch: More stories out today predicting that the troubled company will file for bankruptcy as soon as this week, but no filing yet.

ConocoPhillips told reporters yesterday that it now plans to resume normal production levels in its Alaska operations in July. spokeswoman Natalie Lowman, said the company began cutting production in late May as a part of plans to cut production by about 100,000 barrels a day through the end of June. The decision to cut production was made due to “…unacceptably low oil prices resulting from global oil demand destruction caused by the impacts of the COVID-19 pandemic, combined with a global oversupply of oil.”

Meanwhile, in New Mexico, the Carlsbad Current Argus has a report headlined “New Mexico Democrat primary winners seek transition away from oil and gas.”

Democrat Pam Cordova, a candidate for the state senate, said, “I know we are dependent on oil and gas, but I also believe we can gradually move to renewable energy and responsibly away from oil and gas which is detrimental to our environment. Right now, we are in a bust. That’s why it’s important the legislature come up with a plan.”

Plans are great, but reality says you have to pay the bills. In New Mexico today, that is what the oil and gas industry is doing. Hard to see what kind of a plan is going to magically come up with a way for windmills and solar panels – currently pretty much un-taxed by the New Mexico and other state governments – to make up for the loss of all that revenue.

But hey, it’s a lot more politically expedient in today’s America to advocate fantasy-based energy policies than those based in reality.

That’s all for today.