Drilling Costs in Eagle Ford Have Almost Doubled

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The cost involved in drilling a well in the Eagle Ford shale has soared from approximately $5.3 million to as much as $10 million, according to an expert in exploration and production. This is one of the limitations on growth in the play that has been identified by industry insiders, the Houston Chronicle reports.

Michael Hall, a director and senior analyst for exploration and production research at the financial-services firm Robert W. Baird, said that some of the higher costs are due to the increased number of hydraulic fractures being done per well, which also increases production.

In the summer, a Rigzone survey found that operators in the Eagle Ford play said the costs for drilling ranged from $5.5 million to $9.5 million. The news source attributed this wide variation not just to the amount of fracs per well but also to the wells' depths, lateral length and the number of laterals.

According to Rigzone, the most expensive aspect of the drilling and completion of a well is fracking, or formation stimulation, which accounts for about $2.76 million of the typical Eagle Ford well budget.

Abundance of U.S. Shale Gas Creates Illusion of Oversupply, Says ConocoPhillips Official

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A ConocoPhillips official stated on October 12 that the recently discovered abundance of shale gas in the country has produced a false perception of significant oversupplies.

"The talk of shale makes everyone think we're way oversupplied," Jim Duncan, ConocoPhillips' chief analyst and commodities markets strategist, stated at the LDC Gas Forum Rockies & West in Los Angeles, Platts reports. "The reality is that we're not. The signposts are already here."

Duncan said that one concern about the future of gas is the fact that many drilling rigs are moving to oil- and liquids-rich gas fields from pure-play gas fields. This could cause a significant shift in gas prices, according to Duncan. 

Other factors that could affect the existing supply and demand include public concerns related to fracking, what type of power is used for production and a migration of drilling rigs to gas fields abundant in natural gas liquids and oil from fields that only contain gas, Duncan said.

Predictions for global gas reserves are around 6,000 trillion cubic feet, with North American reserves accounting for almost one-quarter of that amount. However, any of the aforementioned factors could quickly change these estimates.

Although the reserves of natural gas in the United States might be overstated, the downward pressure this abundance has placed on natural prices cannot be ignored, according to Oilweek magazine.  

Chevron Uses Solar Energy to Produce Heavy Oil

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Can solar energy and heavy oil be used together?

The two energy sources are considered by many to be at opposite ends of the “green” spectrum.

Yet Chevron has a new technology in demonstration phase where solar replaces natural gas to heat heavy oil so it flows better.

The project concentrates the rays of the sun using 7,600 mirrors and sends the energy into a solar boiler. The resulting steam is utilized in oil reservoirs to boost oil production. Chevron's project is the largest solar conversion operation in the world.

The Coalinga Field, which has been producing since the 1890s, is an example of an area that could benefit from utilizing steam injections. The heavy crude oil produced at the field has a high viscosity, which makes extraction more difficult. Chevron's equipment eases this process by injecting steam into oil reservoirs to raise the temperature of the crude, which in turns makes it flow more readily.

Now, the steam that is used at this field is created by burning natural gas. The new project will assist the current natural-gas-based steam generators and help to determine whether or not the new solar technology is commercially viable.

"Through this demonstration, we want to determine the feasibility of using solar power for enhanced oil recovery," Desmond King, president of Chevron Technology Ventures, said in the statement.  

Chevron Uses Solar Energy to Produce Heavy Oil

By
1940bkg
-
0

Can solar energy and heavy oil be used together?

The two energy sources are considered by many to be at opposite ends of the “green” spectrum.

Yet Chevron has a new technology in demonstration phase where solar replaces natural gas to heat heavy oil so it flows better.

The project concentrates the rays of the sun using 7,600 mirrors and sends the energy into a solar boiler. The resulting steam is utilized in oil reservoirs to boost oil production. Chevron's project is the largest solar conversion operation in the world.

The Coalinga Field, which has been producing since the 1890s, is an example of an area that could benefit from utilizing steam injections. The heavy crude oil produced at the field has a high viscosity, which makes extraction more difficult. Chevron's equipment eases this process by injecting steam into oil reservoirs to raise the temperature of the crude, which in turns makes it flow more readily.

Now, the steam that is used at this field is created by burning natural gas. The new project will assist the current natural-gas-based steam generators and help to determine whether or not the new solar technology is commercially viable.

"Through this demonstration, we want to determine the feasibility of using solar power for enhanced oil recovery," Desmond King, president of Chevron Technology Ventures, said in the statement.  

China Oil and Gas Tax May Put Up Great Wall to Success for Producers

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China is planning on implementing a value-based tax on sales of natural gas and oil throughout the nation starting in November, according to a statement made by the Ministry of Finance on October 10.

The new oil and gas tax will be applicable to joint ventures as well as domestic producers and will levy a tax on sales between 5 and 10 percent, Bloomberg reports. A 5 percent resource tax was first utilized in 2010 in the Xinjiang Uighur Autonomous Region and was later affected 12 regions and provinces existing in the West, according to Dow Jones Newswires.

The "pilot version" of the policy was implemented in Xinjiang in June of last year, Bloomberg reports. While gaining acceptance of the original tax rate of 5 percent was not a challenge, the new rate of 5 to 10 percent could potentially reduce earnings of the larger Chinese oil companies, according to Dow Jones Newswires.

Moody's Investors Service has predicted that the nationwide adoption of the tax could cost the three major state-owned oil companies as much as CNY44 billion (US$6.87 billion) every year. 

U.S. Rig Count Surpasses 2,000 for First Time Since 2008

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For the week ending October 7, the number of U.S. rigs used for drilling related to natural gas and crude oil increased surpassed 2,000 for the first time since the week ending September 19, 2008.

Of the rigs that were functional during the period, a total of 935 were used for drilling natural gas and 1,070 were drilling for oil, according to Oil & Gas Journal.

This robust rig utilization comes at a time when natural gas prices have been suffering due to the large supply of shale in North America. The Wall Street Journal reports that natural gas futures scheduled for December delivery sank to $3.553 per million British thermal units, which is close to the contract's lowest point in 11 months.

Bloomberg reports that an Energy Department report released the week of October 10 indicated that U.S. gas supplies may increase to 3.77 trillion cubic feet by the end of the month, near the record 3.84 trillion set in November of 2010.

The bold action of increasing rig count in the face of low natural gas prices and high inventories shows the bearishness of officials working in the energy industry.  

Marcellus Shale Case Involving Dunham Rule Appealed to Pennsylvania Supreme Court

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A Pennsylvania court case that has the potential to reverse a century of case law and several Marcellus shale gas leases has been appealed to the state's Supreme Court. The lawyers who appealed the case to the high court have stated that they are simply seeking the reaffirmation of a property law involving the definition of minerals, The Patriot-News reports.

The legal case was brought forth by the heirs of Charles Powers, who acquired the rights to "one-half the minerals and Petroleum Oils" existing underneath 244 acres of land in Susquehanna County which are currently owned by John and Mary Butler, according to the media outlet.

The state's Superior Court stated on September 7 that the relevant law was ambiguous and that a lower court should request opinions from industry experts, Bloomberg reports. The current law separates mineral rights from oil and gas rights.

The Superior Court ruling brought the legitimacy of many gas leases into question, according to the media outlet. This ambiguity caused a Bloomberg News report to say that the industry in Pennsylvania could face "chaos." The attorneys at Buchanan Ingersoll & Rooney who appealed the case to the high court said that the media outlet overreacted and that the existing law would be upheld, The Patriot-News reports. 

Compass Petroleum Ltd.’s Recommendation and Target Price Reiterated by Canaccord Genuity

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Canadian brokerage firm Canaccord Genuity announced on October 6 that it was reiterating its BUY recommendation and and target share price of C$2.75 for junior oil and gas company Compass Petroleum Ltd. (CPO:TSXV). The target price is derived from a 1.0 times multiple of CNAV.

Compass restated its planned capital expenditure of C$50.7 million in fiscal year 2012. This spending plan accounts for the drilling of 38 wells that have an expected June 30 exit rate that ranges between 1,300 and 1,400 barrels of oil equivalent per day. These predictions are in line with Canaccord's estimates. Average production during Q2 was 931 barrels of oil equivalent per day, which was slightly below the Canadian brokerage firm's expectations.

At the time of report, Compass was trading at a 0.4 times multiple of CNAV, a 3.1 times multiple of EV/DACF and $54,250 per barrel of oil equivalent per day. The junior oil and gas company closed at C$1.20 on October 9 and hit a 52-week high/low of C$2.30 and C$0.83, respectively. 

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