The Shale Daily Update – 7.23.2020

Oil ministers from the OPEC+ nations are meeting today to review compliance with their ongoing agreement to limit crude oil production and exports.
Sand destined to the manufacture of cement in a quarry

What You Should Know About Oil and Gas Today

The Big Story

Reuters has a good analysis out today co-authored by Jennifer Hiller and Devika Krishna Kumar. Hiller’s name will be familiar to many readers, especially in Texas, since she did great work covering energy issues at the San Antonio Express during the boom and bust times of the Eagle Ford Shale.

The general thesis of the report is that the bounceback in overall U.S. shale production that is currently taking place is unlikely to last for the rest of the summer. What we have seen since early May is shale producers re-activating wells that they had shut-in during the depths of the price collapse in March and April. All those wells coming back online are likely to cause a slight up-tick in overall U.S. crude production for June and July.

However, at the same time, the rig count and count of active frac spreads have both remained at or near all-time lows, which means that shale companies are not drilling nearly enough new wells to offset the natural, steep decline rates of production in the existing wells. Thus, at some point soon, the overall rate of decline will surpass the production being added as wells are reactivated, causing U.S. production rates to fall again.

It’s a very solid analysis that I wish I’d thought to write myself. Go read it.

Meanwhile, in other news…

Second quarter results are starting to come in, and boy is it going to be ugly for the oil and gas industry. Pipeline giant Kinder Morgan reported a loss of $637 million for the quarter, a turnaround of over a billion dollars from the $518 million profit reported in the same quarter of 2019. The company also announced a $1 billion writedown in assets.

So, when will the bad news end? As reported by Sergio Chapa at the Houston Chronicle, the CFO of Baker Hughes, Brian Worrell, warned investors on Wednesday not to expect any respite through at least the end of the third quarter. “For the full year 2020, we continue to expect U.S. drilling and completion spending to be down more than 50 percent versus 2019,” Worrell said. “And now, we expect international spending to decline 15 percent to 20 percent versus 2019.” Yikes.

Here’s a rare instance of Congress getting something good done for the country. In a bi-partisan vote on Wednesday, the House of Representatives actually got something right, approving the Great American Outdoors Act, which will fully fund the Land and Water Conservation Fund (LWCF) and work toward ending a maintenance backlog at federal parks. The LWCF has been a political football for decades, with congress having to renew its funding each and every year. I personally worked on a bill 25 years ago attempting to get the funding for this fund increased. So, the establishment of a permanent funding mechanism for this important program is good news for the country.

The Louisiana Advocate reports today on a proposal to target federal stimulus funds for the plugging of orphaned oil and gas wells around the country. Gifford Briggs, president of the Louisiana Oil and Gas Association, supports the proposal. “There are multiple layers of benefits,” he said. “It gives the opportunity to put people back to work and money back in our communities … and it continues to improve our environment.”

The Hellenic Shipping News reports that, between January and May, oil production from North Dakota declined by 40%, far out-pacing other oil-producing states. The size of the drop in the state’s production — from 1.4 million barrels per day (b/d) at the start of the year to 860,000 b/d by May — could exceed the oil production decline in Texas in both percentage terms and outright, even though Texas produces four times more oil. Amazing.

That’s all for today.

[NOTE: The Shale Daily Update will be on hiatus for the next 10 days. It will return on August 4.]












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