News From The Oil Patch 3/31/2015

The Kansas Geological Survey reports the fifth consecutive year of increased oil production in the Sunflower State, a whopping 49.5 million barrels. That's a 20-year high.  For record production, you have to go back more than fifty years, when production topped 120 million barrels.  Natural gas production continues a string of annual declines dating back to 2008. 
 
Preliminary state data show crude oil production in Texas rose in January, though drilling permits for February are down 45 percent year-on-year.  The Railroad Commission of Texas, the state energy regulator, reports total crude oil production for January was 2.2 million barrels per day, a 15 percent increase over January 2014.  Texas is the No. 1 oil producer in the nation. About half of all rigs actively exploring for or producing oil in the United States are in Texas.
 
Oil-industry experts are crying foul over the much anticipated oil-by-rail safety rules in North Dakota. Reuters reports the new regs to cap vapor pressure fail to account for how the crude oil behaves in transit.  The new rules, scheduled to take effect April 1, aim to contain the danger of explosion by spot-checking the vapor pressure of crude before loading.  The plan relies on a widely-used test for measuring pressure at the wellhead, but safety experts say gas levels can climb inside the nearly-full tankers, so they say the checks are a poor indicator of explosion risks.
 
There were just 34 drilling permits filed for new locations in Kansas last week.  There were 21 east of Wichita and 13 in western Kansas including one in Barton County.
 
Independent Oil & Gas Service reports 143 well completions across the state.  There were 69 in eastern Kansas.  Of the 74 west of Wichita there were three in Barton County, one in Ellis County, two in Russell County and four in Stafford County. Eleven of those completions in western Kansas were dry holes.
 
Baker Hughes reported 1,048 rigs actively drilling for oil and gas in the US on Friday.  That's down 21 rigs for the week.  The number dropped by 20 in Canada to 120 active rigs.  Independent Oil & Gas Service reported 53 active rigs statewide, 53 east of wichita, up three, and 35 in western Kansas down four.  There were 48 rigs listed as pending their next location assignment and 113 rigs were stacked, unchanged from last week.
 
The number of drill rigs in western North Dakota's oil patch slipped below 100 for the first time in five years due to the sagging price of crude.  There were 98 rigs drilling in North Dakota on Wednesday. That's 100 fewer than on the same day one year ago. It's the lowest since March 2010. North Dakota produced about 1.2 million barrels of oil per day according to the most recent monthly report.  Industry officials say about 115 rigs need to be drilling to keep that level of production.
 
Palmer Manufacturing and Tank of Garden City is cutting its workforce by about 40% or 80 jobs.  The parent company, Ohio-based Worthington Industries, is cutting 245 jobs nationwide and shuttering its plant in Florence, South Carolina. The company blames reduced demand because of low oil prices.
 
There is growing angst in the oil patch and the investment community about increasing debt among oil and gas production firms.  The headline in Forbes Magazine sums it up: "Stop Propping Up Zombie Oil Companies."  Forbes staff reporter Christopher Helman quotes a Houston broker who has lived through three oil slumps who says the city is in a deep state of denial.  The broker says everyone seems to think it's going to be different this time, that the city is more diversified than it used to be.  But he says oil still supports everything there. Examples cited are the $1 billion equity commitment from Quantum QTM to Linn Energy, and Whiting Petroleum's announcement of a $1.9 billion equity offering. Encana offered $1.5 billion in new equity.  Laredo Petroleum raised $750 million, Concho Resources $650 million, Oasis Petroleum $400 million and Rosetta Resources $200 million. A hedge fund manager calls it "a leading indicator of an underappreciation of risk," warning of the effect on the broader economy should there be a wave of high-yield bond defaults.
 
An Energy Department advisory council study being released last week concludes that it's time to move ahead with Arctic oil drilling. The study says lack of action carries the risk of a renewed reliance on imported oil. The U.S. has an enormous trove of oil in the Arctic waters off of Alaska. The government predicts that the current shale boom, which has transformed the U.S. into the world's biggest producer, won't last much beyond the next decade.
 
In Nigeria, where tens of millions of barrels of crude oil have spilled because of oil thefts from pipelines, the price is so low it's not worth stealing anymore. The Wall Street Journal reports that with prices low, the risk of getting caught now outweighs the rewards.  Some of that oil was being smuggled onto international markets, and some was sold off a gallon at a time by locals unable to earn a living. Experts don't know exactly how much was being stolen or spilled, but today they brag that the number is down to 50,000 barrels per day. Advocacy groups say that with the theft level this low, the time has come to tackle the problem
 
Investor Carl Icahn increased his stake in Chesapeake Energy amid the stock’s worst quarterly performance since 2008.  Three of Icahn's limited partnerships bought 6.6 million shares on March 11th, bringing the investor's total stake to 11%.  Chesapeake is the second-largest US producer of natural gas, but the Oklahoma City company has been hamstrung by low prices, and internal struggles.  
 
Bloomberg reports Halliburton and Baker Hughes plan to begin seeking buyers for as much as $10 billion in assets that the oil-services companies need to sell in order to complete their merger.  The companies are planning to unload at least four batches of overlapping business lines in order to win approval from the U.S. Justice Department for their $34.6 billion merger. The divestments are needed to satisfy antitrust concerns.  Halliburton and Baker Hughes are the world’s second- and third-largest oilfield services companies, but Schlumberger would still be about twice the size of the combined company.