The Shale Daily Update – 7.6.2020

Dominion and Duke Energy announced over the weekend that they have cancelled plans to complete the $8 billion Atlantic Coast Pipeline project.
Oil refinery industrial plant at night

What You Should Know About Oil and Gas Today

The Big Story

Dominion and Duke Energy announced over the weekend that they have cancelled plans to complete the $8 billion Atlantic Coast Pipeline project. The pipeline would have carried natural gas produced in the Marcellus Shale region across the Appalachian Mountains to markets a long the East coast of the U.S.

The cancellation of the project comes weeks after the companies had actually won a case before the U.S. Supreme Court that gave them the right to build the pipeline underneath the Appalachian Trail, a route that radical leftist anti-development groups had opposed. But that expensive litigation helped to increase costs related to the project to levels that would have diminished its profitability.

Thus, this court fight results in a Pyrrhic victory for those “environmental” groups, given that it means that many areas along the Atlantic coast will continue to generate electricity using coal rather than clean-burning natural gas. But of course, those groups really don’t much care about the environment at all.

The State of Play

As we open the week, the price for a barrel of West Texas Intermediate is trading at $40.62. Prices remain relatively strong based mainly on positive indications about recovering demand globally. The NYMEX natural gas price stands at $1.85, having jumped up at the end of last week by about $.20.

The Enverus Daily Rig Count opens the week at 268, another record low, as companies continue to deactivate rigs as they start to execute on their capital budgets for the 2nd half of 2020.

The frac spread count from Primary Vision rose a bit last week to 74 active spreads nationally. That’s up from the mid-May low of 45, as companies continue to focus now on completing their inventory of Drilled but Un-Completed (DUC) wells.

In Other News…

The US Energy Information Administration (EIA) estimates that overall US oil production recovered somewhat during the second half of June as companies began to re-activate shut-in wells in response to somewhat stronger prices. The EIA says US production stood at about 11 million bopd as June closed, which is up from about 10.5 million bopd earlier in the month, but off by 2 million bopd from the peak in March.

We should expect that increase in overall production to be a temporary phenomenon, though, since the low rig count means that shale producers are not coming close to drilling enough new wells to replace production losses from the rapid decline rate in their existing shale wells. We also need to understand that significant increases in that rig count are very unlikely to take place for the remainder of 2020, as companies continue to execute on dramatically-reduced drilling budgets. The rest of this year will be all about cost control and debt maintenance.

Nikhil Bhandari, refining analyst at Goldman Sachs, says that her company believes “we are entering into an ‘age of consolidation’ for the refining industry,” according to a new report at Bloomberg News.  It’s fair to note that Goldman and other analysts have been saying the same thing about consolidation in the shale industry for the past two years, and it hasn’t happened. So, we will wait and see about this whole refining deal.

Speaking of predictions we shouldn’t necessarily believe, CitiGroup now predicts that demand for refined products has now peaked and  will never return to their pre-COVID-19 levels. Personally, I’d to be a great deal of money that demand for those products will exceed those levels within the next 12 months. The uninterrupted record of those predicting we have reached any form of “peak oil” is that they have been wrong, every time, for well over a century now.

Veteran industry writer Jim Magill has an excellent report at the Houston Chronicle about the industry’s rising use of drones in its operations. As companies continue to focus on cost efficiencies, drones have proven to be an effective tool in a number of areas. It’s a really good read.

Houston-based Rosehill Resources announced late Friday that it plans to file for Chapter 11 bankruptcy by July 15. Rosehill is an independent producer focused on the Permian Basin.

In good news you won’t see reported by CNN or the New York Times, F. Joel Fodrie, Associate Professor of Marine Science, University of North Carolina at Chapel Hill, writes that the Deepwater Horizon spill in 2010 “did not appear to cause significant oiling injury to coastal fish populations.”

Oh.

Prof. Fodrie’s findings come despite “early projections estimated that the toll on fisheries could reach $5-10 billion by 2020.”

The more you know.

That’s all for today.