Eagle Ford Shale Blog

Eagle Ford Shale Year in Review 2015

How Has the Region Fared During the Downturn?
Eagle Ford Shale December 2015

Eagle Ford Shale December 2015

Boom. Bust. Risk. Reward. Opportunity. Crisis.

All of these are words used to describe life in the oil and gas industry. 2015 has been one wild ride for the Eagle Ford as crude prices plummeted, people lost jobs and companies failed.

After topping $100 a barrel in 2014, crude prices began a descent that is still in play with prices falling below $35 earlier this month, a seven-year low that is wreaking havoc on operators and local economies.

In January, evidence of the crude crash become obvious as producers began reporting big losses for the last quarter of 2014. Operators slashed their projected spending for the new year, sometimes as much as 70%, as the reality of the situation sunk in.

As many people became nervous, some industry leaders early in the year expressed optimism and called for perspective. At NAPE in February, Bob Fryklund (IHS) encouraged participants not to push the panic button too quickly. He acknowledged that the conversation has changed in recent months but was quick to remind participants of the cyclical nature of the industry and that history indicated we would weather this storm.

Eagle Ford Rig Counts & Production

The slide in oil prices in 2015 was reflected in the number of drilling rigs in the Eagle Ford as producers began to sideline rigs as a tactic to wait out the low prices. Rig counts across the country and in the Eagle Ford fell steadily for most of 2015, but stabilized in the last quarter.

Many believe that once oil prices rise, the U.S. will be in a prime position because of the thousands of wells that have been drilled, but not yet completed. This ‘fracklog’ holds a lot of potential production with likely more than 1.5 billion barrels of oil just being held back, ready to go. In the Eagle Ford it is estimated that there are 1400 wells that have yet to be completed.Eagle Ford Shale rig count 2015

Despite the reduced rigs, production in the Eagle Ford hit record amounts for most of the year. In January, Texas led the world by producing 18.81 billion cubic feet of natural gas per day, more than more than any member of OPEC. Karnes, Dimmet and McMullen Counties topped U.S. production with Karnes accounting for 30% of all Eagle Ford activity. Even though production began to sow in April, the region still produces an average of 1.5 million barrels per day, a year-to-year increase of nearly 40,000 incremental barrels per day (3%) from November 2014.

Companies Struggle to Survive

Oil producers have used every tactic in the book to try and squeeze out more oil for less this year. They have become more efficient, increased technologies and reduced costs, including one CEO who slashed his own salary.

It took a little time for the reality of the low oil prices to finally trickle down, but after months of plummeting crude, the boom became a bust for many when companies started handing out pink slips. By October, the industry lost an estimated 200,000 jobs with around 60,000 in Texas alone.

For some companies, decreasing budgets and laying off workers wasn’t enough to stay afloat and over 18 Eagle Ford producers filed for chapter 11 in 2015 including Energy & Exploration Partners, Sabine, American Eagle Energy, Quicksilver Resources, BPZ Resources, WBH Energy and Walter Energy. By mid December Haynes and Boone, LLP released a report that showed there were 36 bankruptcies nationwide totaling about $13 billion in debt.

New Rules & Regulations

Another challenge facing the Eagle Ford in 2015 was the increased reach of the government to regulate the oil and gas industry.

After Denton officials outlawed fracking, Texas Governor Greg Abbott signed legislation in May that allows state authority to override local decisions about oil and gas regulations. State officials were also vocal in their opposition of other federal guidelines for fracking and methane emissions, calling them a blatant attack on the industry that will kill Texas jobs. In July, Texas’ Attorney General Ken Paxton even filed a lawsuit, accusing the Obama Administration of illegally attempting to expand the jurisdiction and regulatory power of the EPA in such a way as to threatens private property ownership.

Texans fought hard to end the 40 yr old oil export ban. A 2015 study from Rice University revealed that the ban had the greatest impact on producers in the Eagle Ford Shale since its sweet crude should attract a higher price on the international market. The ban was recently repealed, opening markets for Eagle Ford producers.  Also last month, the U.S. Department of Commerce opened the door for a limited amount of oil to be exported to Mexico through an exchange program that will allow the U.S. to ‘swap’ its light sweet crude for Mexican heavy sour crude.

Tighter regulations were also suggested over concerns about the connection between fracking and earthquakes. A study led by researchers at SMU concluded that earthquakes in the north Texas communities of Azle and Reno were likely triggered by the wastewater disposal methods used by fracking companies and asked the Railroad Commission to consider additional regulatory changes to ensure that oil and gas continues to be developed safely yet with minimal economic impact in Texas.

Effects on Texas Economy

As the value of the oil and gas being pumped from the ground dwindled, the shrinking tax base for local governments have affected local and state economies. There is now less money to run schools, police departments, road crews and other important infrastructure. Research director, Thomas Tunstall says that communities that avoided immediately spending their newfound oil and gas wealth are doing better than those who did not, and that those that diversified are doing best of all.

The latest numbers produced monthly by Comerica Bank show that the Texas Economic Activity Index continues to decline. The Index measures such variables as non-farm payrolls, exports, hotel occupancy rates, unemployment insurance claims, housing starts, sales tax revenues, home prices, and the state rig count.

In the following video, Mine K. Yücel, Dallas Fed senior vice president and director of research, provides updates on the Texas economy.

Birthday of 2014 Oil Crash

A Summary of the Last 12 Months
Crude Price History

Crude Price History

This week marks the birth of the 2014 oil crash and a closer look suggests that things aren’t as bad as some predicted.

What started as a slow decline in June 2014 accelerated into a full-blown crash throughout the fall. When prices finally bottomed out in March, they had dropped by more than half from over $105.00 to $48.00.

By last December, uncertainty fueled the news machines and cries of doom became commonplace. Some analysts predicted possible economic ruin for oil-dependent states and others warned of the crippling of the industry.

But many seasoned oilmen saw the downturn as a wake up call of sorts and an opportunity for producers to take a hard look at their systems, processes, personnel, technology and strategies outside of the frenetic pace the boom required.

Read more:  Oil Bust Brings Opportunities

Cutting Costs: Over the last few month, producers have been forced to tighten their budgets and change their strategies in order to stay competitive. These tactics have worked well and first quarter results show many companies have been able to stay the course and gain strength by slashing costs associated with drilling through greater efficiencies and supplier reductions.

  • Sanchez reported Q1 costs at 30 to 40% below fourth quarter 2014
  • Matador reduced operating costs 30% to 40% for Q1
  • Continental’s drilling and completion costs fell by 15%
  • EOG announced it has benefitted greatly from the pull-back in activity and progress is being made to lowering cost in each phase of their operations

Innovation: Cutting edge producers are pushing the science and technology to new levels as they work to get the most out of their resources. These include advancements in 3-D seismic research, telemetry, remote guidance and innovations in  CO2 or nitrogen-style completions.

A Wall Street Journal article recently said that this increased efficiency has fundamentally changed the industry. “Oil production is becoming a modern manufacturing process. The frackers are engaged in ‘just-in-time’ production, analogous to the methods pioneered by Japanese manufacturers in the 1970s and 1980s, which led directly to hyper-efficient global supply-chain management perfected by Wal-Mart in the 1990s.”

Economic Impact: Thousands of jobs have been cut across all sectors of the industry, but both Texas and North Dakota report that the oil crisis has had minimal impact on their states. Data shows that Texas dipped in the first quarter but is already showing signs of a rebound and the North Dakota Department of Commerce boasts that the ND economy is still booming.

Dropping Rig Counts: The national and regional rig counts took a big hit this year as producers pulled rigs offline to save money. Many report that these wells are waiting in the wings and are ready to be put back into production later this year.

Record Production: Even in light of the price drop, production over the last 12 months has been at record levels. The EIA data published this month shows that global petroleum oversupply has more than doubled to 2.6 million bpd since the end of the second quarter last year and they expect the oversupply to last at least until 2017.

 

Memorial Day 2015

Honoring Our Fallen Heroes

Honoring Our Fallen Heroes

Wishing you a safe and happy Memorial Day.

Please take a minute today to remember those who sacrificed so much for our quality of life.

Related: One veteran’s perspective on what this day means to him.

Instrumentation, System Integration and Expert Capability: Critical Success Factors for Pipeline and Refining Operations

This guest blog post is written by Darlene K. Gregory

Measuring pressure, temperature, flow and level in the pipeline is critical for midstream and upstream producers. When the pipeline is miles long, as many in the Texas Eagle Ford Shale, Bakken Shale and the Texas Permian Basin are, the quality of your process tubing, compression fittings and instrumentation is as critical as the pipeline itself to the profitability of the producer.

solenoid shutdown system # 2Instrumentation and process systems regulate interface levels in tanks to separate oil and water, so oil can be trucked to refineries for processing or to the nearest port for shipment. Faulty instrumentation or process systems can cause lower pricing for your product, as the oil is “contaminated” by excess water.

“Producers spend many millions of dollars to install the pipeline, X-ray the wells, and hydrotest the pipe. Correct, meticulous installation of process systems, tubing and compression fittings in the pipeline prevents lines from blowing or leaking – ensuring safe operations for staff, the community and the environment.” said Rolando Perez, Project Manager of Rabalais I & E Constructors’ Instrumentation & Systems Integration Division. “When oilfields become prolific, such as the Eagle Ford Shale has, many mechanical and roustabout companies enter the market to provide instrumentation and process tubing services. Unfortunately, many of these companies are unaware of the critical nature of correct insertion of the tubing and fittings. We’ve been called to remedy faulty installations time and time again,” said Darrell Harned, Vice President of Instrumentation & Systems Integration.

Instrumentation and process systems regulate interface levels in tanks to separate oil and water, so oil can be trucked to refineries for processing or to the nearest port for shipment. “Faulty instrumentation or process systems can cause lower pricing for your product, as the oil is “contaminated” by excess water,” said Harned.

Rabalais Instrument & Electrical Constructors has served the oilfield, refining and petrochemical industries nationwide for 30 years. Located just 60 miles from the Eagle Ford Shale, in Corpus Christi, Texas, the company employs several hundred certified and trained electricians, instrumentation, RTU/SCADA and system integration specialists. With offices in San Antonio, Houston, Dallas, Midland/Odessa and Louisiana, the company has long term relationships with some of the biggest names in the petroleum industry…NuStar, Anadarko, Chesapeake, Citgo, Valero, Texas Star and Exxon to name but a few, both in the field and in the refineries.

Rabalais provides installation, calibration, and loop check of all types of pneumatic/electronic instrumentation utilized for control and monitoring of process systems. The company’s NCCER Certified Instrument Fitters and Instrument Technicians can assist you on any new construction, revamp, maintenance, or turnaround project nationwide. Rabalais addresses the client’s business needs through conceptual design while utilizing state of the art construction disciplines to examine the entire scopesolenoid shutdown system #1 of the project. Its project managers and team leaders incorporate all project issues to provide the greatest potential of success for clients, including cost improvement, life cycle expenditures, capital cost expenditures, project management, scheduling, procurement, installation, process training, service and maintenance.

Rabalais’ extensive experience in all types of industrial processing facilities has allowed the firm to create a safe and productive working environment that exceeds all national standards for the industry. It takes pride in its unique ability to integrate disparate systems to increase efficiency and production.

The company’s capabilities include:

  • Installation of Pneumatic / Electronic / Hydraulic Instrumentation per client standards & specifications
  • Select and procure material per client specification
  • Design and fabricate elaborate tubing tray support systems
  • Interpretation of client drawings and specifications
  • Installation / Design of Steam and Electric Trace Systems
  • Install Pneumatic, Process Impulse, Sample and Hydraulic Tubing Systems
  • Instrument & Electrical construction, maintenance and turnaround services
  • Project estimating, planning and scheduling
  • P&ID walkdowns
  • Constructability reviews
  • Steam tracing
  • System Maintenance

In refineries, as in the field, Instrument Calibration is critical to a successful installation of any instrument system. Accuracy of the information produced by any instrument is dependent on proper calibration. OEM-stated procedures are used by Rabalais technicians to correct any inaccuracies and document findings. Services are offered in your facility without removal of the equipment or disturbing normal process operations. Rabalais saves time and cost during construction of your project by performing Field and Bench Calibrations prior to installation. The company calibrates, certifies and documents every instrument. Pre-installed instruments are field calibrated. All Calibration Services include complete control loop testing.

“Experience has taught us that project success requires early planning, continual monitoring, and full, open and regular communication with our clients. Rabalais programmers are experts in System Integration Design, providing interfaces and implementing complex control strategies,” said Harned.

Since all departments necessary for successful integration are in-house at Rabalais, the firm is a single source for a complete turnkey control system project of exceptional quality. Formal project management methodology is used on every project. Rabalais’ mission is to ensure clients receive cost-effective solutions, reduced down time, and are provided total asset protection.

From initial design and consultation, through system development, commissioning and support, Rabalais’ innovative control and automation solutions keep your systems online.

Programmable Logic Controller (PLC) Systems are integral to safe plant operations. Rabalais provides the following services for PLCs:

  1. Control logic for various PLC & hardware vendor
    • relay ladder logic
    • function block diagram
    • sequential function chart
    • structure text
    • instruction list
  2. Operator interface hardware programming (character displays to graphical touch screens)
  3. UL control system panels
  4. Fully documented control logic programs
  5. PID loop control programming and fine tuning
  6. Dial-up program support
  7. Industrial communication layout design and implementation (Ethernet, ControlNet, DeviceNet, Modibus, Profibus & others)

Rabalais is a recognized leader in the petrochemical, refining and oilfield services industry. The company’s EMR safety record is unmatched, and its many safety awards attest to its commitment to training its staff for excellence.

“We always find it interesting how many companies we compete with during “boom” periods,” said Harned with a chuckle. “Rabalais has spent three decades investing in state of the art technology to provide top quality electrical, instrumentation, system integration and RTU/SCADA programming for our valued friends in the industry. When all the others leave, Rabalais is still growing our clients’ revenues and maintaining their projects and plants safely.”

For more information on how Rabalais Instrument & Electrical Constructors can enhance your bottom line, call 361-242-3121 or visit www.rabalais.com.

Weathering the Oil Crisis

Thunder Exploration, Inc. Founder Shares his Perspective
Thunder Exploration, Inc

Thunder Exploration, Inc

Daily news reports continue to announce cuts, layoffs and mergers from big producers, but it is the smaller companies who may be the most vulnerable during the current oil crisis.

Related: Small Oil Companies Express Optimism

Today, I am featuring an interview with independent geologist, Walter Light, to get his perspective on the current downturn.

Thanks for taking a few minutes to give me your perspective on what is happening in your sector. Tell me a little about yourself.

I am an independent geologist and formed Thunder Exploration, Inc. in 1981. We like to see ourselves as a prospect-generating shop with a desire to follow our prospects all the way to production in the terms of moving forward and helping operators. That is what our focus has been for the last 30 years; generate oil and gas drilling projects, market them to the industry and then stay involved with details such as well planning, execution, evaluation and recommendation on completing a successful well.

How have low crude prices affected your work as a geologist?

Well, probably the same as in the rest of the industry. Having been in the business a long time we have the benefit of general stability in our specific business world. But in general, we do see a reduced cash flow into the business.

If you want to continue to drill wells in this environment, you have to get a feel that the cost to do so is commensurate with the price of the commodity. In the free fall pricing environment that we have experienced, nobody’s really been willing to reach up and grab that “falling knife”, as it’s been described-whether it is buying equities in the oil and gas industry or putting deals together or hiring third party services.

Everyone is still trying to correct and to understand if we are at the bottom or not. So generally I think it has slowed the business down and those companies that don’t have debt service and adequate cash flow behind what is required to run their business, they can get into a slower mode of doing business. That’s kinda where we are; kind of a breathing room.

There is time to take a breath, stand back and look at what you have done over the last several years. And if you want to drill new wells, those wells have to be commensurate with the current price. So we are focusing on taking working interest in other people’s deals but also in our generating mode looking at conventional wells, vertical wells and/or horizontal wells that don’t require hydraulic fracturing, because that is a major expense. Or vertical wells that don’t require big completion costs like occur when you hydraulically crack a well. So there are a lot of plays in the $40-50 range where we can play.

It does cause a re-step back and a slow down and a re-think. We are probably just going to try to continue doing business just as we have with those modifications until we get a feel for where the bottom is and then the service companies will have to adjust their pricing, particularly all of the services that are required for fracking. Halliburton, Baker Hughes, Schlumberger, all these companies that provide a lot of services on the completion side, will have to correct pricing if they wanna keep busy. And that takes a little while for them to adjust, but they will.

Mr Light says that his company is, “Pretty much business as usual at a slower pace and a slight alteration in the targets. But in the short term, we will probably hold off where we’ve been involved for awhile and that is Eagle Ford, that require fracking. Now we may participate in some wells that get  drilled and hold off on the fracking part until the wells are completed, that is stable, with pipe in the ground but not producing until fracking companies adjust their price to the current market.”

You said you have been through this before? Historically, are there any good things that come out of these downturns?

Lots of them. For one thing, it does help everyone to adjust; it forces the service companies to adjust their prices and forces operators to become more efficient in their drilling and recovery methods. So horizontal drilling and fracking are an efficient way to recover light carbons that are more difficult, but even with that spectrum there are things you can do to increase the efficiency of recovering and lower the cost and recover hydrocarbons.

Also, we have been in a frenzy in the Eagle Ford since about 2009. First it was land grab and then it was the intensity of the activity which drove the service company prices up. We’ll get an adjustment downward in pricing, it will give people and operators and geologists like me time to sit back and think about what they have done over the last few years and if they can improve their methods and monitor their existing production. During the frenzy of hitting wells, getting the first wells drilled on a lot of these leases.

That is a fantastic question because it flips it around from a negative to what are the positive things that will come out of this. It will force us as an industry to become more efficient in everything that we do and try to think of new ways. There will be new technology that will come out of this downturn because people want to think of how to do it cheaper, quicker, better and less costly.

For more information about Thunder Exploration, email wthunderx at aol.com

Merry Christmas!

merry christmas

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