News From The Oil Patch 12/22/2014
22 December 2014
Kansas oil prices have reached depths some producers have never experienced. Old hands in the patch are reminded of those the bust years of 2008 and 2009 nearly every day as NCRA prices continue to plunge. On December 18 the price for a barrel of Kansas Common was $43.75, the lowest in McPherson since May 5, 2009. On Friday, December 19, prices rebounded, and the NCRA price jumped $2.50 to $46.25/bbl.
The drop in crude prices this year has hurt the economies of oil-producing countries, thus reducing demand. Current Brent prices are too low for ten of OPEC's 12 members to balance their budgets, yet not low enough to force producers to scale back output. The U.S. is producing the most oil in three decades while OPEC members have pumped more than the group’s target level for each of the past six months.
The monthly demand forecast from OPEC is contributing to the continuing oil-price slump. The cartel now predicts demand for its product will fall to its lowest point in more than a decade next year, to 28.92 million barrels a day. That's more than a million barrels less than OPEC's current output.
Plunging crude prices are hitting some oil producers especially hard in Kansas, where the industry is dominated by smaller, independent operators who depend heavily on the cash flow from producing wells to pay for drilling new ones. The AP quotes Osage Resources President Robert Murdock saying if prices continue to decrease, he may not drill any new wells next year. When prices were higher, Murdock had plans to drill 20 wells in 2015. The Hutchinson producer says it costs between $2 million and $3 million to drill a horizontal well a mile deep with a lateral of one mile.
Tulsa-based Triple Crown Energy announced plans to drill up to 24 new wells in the Mississippian Lime play in Kansas within the next year. The company says the deals could lead to further development of some 40,000 net acres in Kansas.Joint ventures were set up with US Energy Development Corp and Millenial Energy Partners, which bought working interests in the projects in Hodgeman, Ness and Gove counties. The company says drilling operations are already underway.
The Federal Reserve Bank in Dallas says a prolonged oil price slump could cost the state of Texas 128,000 jobs by the middle of next year. But the Fed also said that would not be enough to slow the state's job growth to zero. Texas is on track to add 390,000 jobs this year, so the job losses in the patch would amount fto about 1.1 percent of the state's non-farm employment of more than 11.6 million jobs.
Declines in oil and gas severance taxes contributed to large drops in overall revenues for Alaska and North Dakota in the third quarter. The Rockefeller Institute of Government, a public policy research group, reported that Alaska saw its total tax collections drop 74.3 percent. In North Dakota tax revenues fell 46.7 percent. Revenues rose from year-ago levels in many other states where energy production helps power the economy, including Texas, West Virginia, Pennsylvania and Oklahoma. Most states saw tax collections rise in the third quarter, and overall state revenue was up 4 percent from the same period in 2013, according to data collected from 48 states.
A new law in Oklahoma to reduce income taxes does not kick in until state revenues grow. But Secretary of Finance and Revenue Preston Doerflinger tells the Daily Oklahoman that "it's iffy at best" whether the state will see the required income growth. Gross production tax receipts dropped below prior year collections in November for the first time in 19 months, based on a price of $93/bbl in September. The price is now MUCH lower, so tax colletions are expected to drop.
More than a dozen states now have gasoline stations boasting prices below $2 a gallon, with Oklahoma leading the way. The Sooner State's average price is just over $2.27/gallon. That's the second-lowest statewide average in the US and the least expansive average in Oklahoma since 2009. The average in OK has dropped for 48 consecutive days.
North Dakota Governor Jack Dalrymple expects the global oil market to rebalance next year. Dalrymple told Reuters express confidence his state will "comfortably" ride out OPEC'sw attempts to squeeze other producers. Dalrymple calls it a "clear, classic, commodity market shake-out."
The Kansas Corporation Commission reports 469 new intent-to drill notices filed statewide in November, a seasonal dip from October's 662 filings and a fairly steep drop from the 502 intents reported in November of last year. There were 23 intents filed in Barton County, but just six in Ellis County, eight in Russell County and two in Stafford County.
Baker Hughes reports 1,875 active drilling rigs nationwide last week, down 18 for the week. In Canada there were 391, down 40. The count in Kansas was 30 rigs actively drilling for oil and gas, up two. Independent Oil & Gas Service reports 101 active rigs across Kansas. The count east of Wichita was unchanged at 29. There were 72 active rigs in western Kansas, down eight, and 49 rigs await their next location.
The State of Kansas issued 80 permits for drilling in new locations last week, 48 in eastern Kansas and 80 west of Wichita. There was one new permit issued in Ellis County, one in Russell County and five in Stafford County.
Independent Oil & Gas Service reports 130 new well completions across Kansas last week. 68 were east of Wichita. Of the 62 in western Kansas, 15 were dry holes.