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Permalink Reply by Skip Peel - Mineral Consultant on October 16, 2014 at 5:09

When I get the chance I'll see if any LA TMS operators have filed for their severance tax exemptions.  There is not enough activity currently in the TMS for drillers and other service companies to feel the need to price competitively.  Pressure pumping companies particularly have no reason to bring in more crews.  I suspect that wells which require Pilot Holes are closer to $18,000,000 and that those that do not would be in the range I previously posted.....If everything goes right.  It doesn't take much in the way of mechanical problems to add a couple million to the cost of a well.

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Permalink Reply by cocodrie man on October 16, 2014 at 5:07

Is there a "premium" on Louisiana Sweet?  If so, what is the amount of that "premium?"  I cannot seem to find an answer to these questions.  Finally, is the oil produced in the TMS classified as Louisiana Sweet?  If I have used terms/classifications incorrectly, please correct me.  I remain an eternal novice.

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Permalink Reply by Skip Peel - Mineral Consultant on October 16, 2014 at 5:19

Looks like the spread between WTI and LLS is about $2 currently.  $79.10 vs. $81.19.  LLS has less transportation cost to Gulf Coast refineries.  Both have the disadvantage that much of Gulf Coast refining capacity is geared to heavier oils the bulk of which have come from Venezuela.

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Permalink Reply by tc on October 16, 2014 at 6:08

If you can't find the LLS price, look for the more common Brent oil price as the LLS historically trades closer to Brent oil.

I said "historically" because the increase production of Eagle Ford shale oil and maybe the TMS in the future will most likely cause spreads to change.

Here is part of an article from May 16, 2014 about these spreads.

Prices for Louisiana Light Sweet crude, priced at the U.S. Gulf Coast, also rose. The LLS benchmark is linked to Brent prices, largely due to imports shipped into the Gulf Coast market.

Gulf refiners therefore held a relative disadvantage. And producers in the Gulf of Mexico and in regions including much of Texas' Eagle Ford shale were paid a premium vs. WTI and Bakken crude.

Then there's a Midland, Texas, WTI benchmark that reflects prices for oil coming largely out of the Permian basin.

Since the middle of last year, that picture has substantially changed too.

Glut Migrates To The Coast

The recent startup of several high-capacity pipelines from Cushing to the Gulf Coast has once again altered the picture.

The Cushing storage hub has a total capacity estimated at 80 million barrels. New pipelines are sucking oil away from that hub, decreasing supplies in 14 of the past 15 weeks.

Supplies there have dwindled from more than 40 million barrels at the start of the year to below 25 million barrels.

Industry experts say inventories must remain near or above 20 million barrels in order to assure the ability to deliver contracted supplies to refiners as well as on futures contracts.

Supplies along the Gulf's energy complex, meanwhile, have soared. Stockpiles there rose from around 150 million barrels at the start of the year to more than 215 million barrels.

"People are beginning to get concerned," Herbert said, regarding the uncontrolled rate of rising inventories and the difference between the two regions.

Brent and WTI prices rose to three-week highs Wednesday, despite data from the Energy Information Administration showing U.S supplies continued to increase.

Supply also continued shifting from Cushing to the Gulf, and gasoline demand increased for the first time in four weeks.

The LLS benchmark continued to hover about $1.90 above WTI, according to energy analyst Phil Flynn with Price Futures Group. That was well below Brent's $8 premium, but not reflective of the swelling supplies in the Gulf.

"Traditionally, light Louisiana competes with Brent," Flynn said. "If we started to export more U.S. crude, that would really bring it down."

Read more: http://www.nasdaq.com/article/wti-vs-lls-a-major-shift-in-the-us-oi...

http://www.nasdaq.com/article/wti-vs-lls-a-major-shift-in-the-us-oi...

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Permalink Reply by jim weyland on October 16, 2014 at 6:03

the timing of this weakening of liquids prices couldn't be worse. folks are presently drawing up/finalizing their 2015 drilling programs/budgets. i remember being told by a very senior sergeant in regards to whether or not to do things, 'jim, if in doubt, don't.'

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Permalink Reply by Skip Peel - Mineral Consultant on October 21, 2014 at 5:10

OPEC Finding U.S. Shale Harder to Crack as Rout Deepens

Bloomberg News  By Grant Smith and Dan Murtaugh October 15, 2014

OPEC is resisting pressure to cut oil production while demand slumps as it tests how low prices must go to make U.S. shale oil unprofitable. As producers become more efficient, that floor is sinking.

The Organization of Petroleum Exporting Countries boosted output by the most in 13 months in September, even as crude plunged into a bear market and demand growth weakens to a five-year low, according to the International Energy Agency. Saudi Arabia and Kuwait, the largest and third-largest members of OPEC, indicated the price slump doesn’t warrant immediate production cuts, the IEA said.

While OPEC acted as a “swing producer” over the past decade, responding to surpluses by cutting output, it’s now letting oil slide to see if North American production can withstand lower prices, said Antoine Halff, head of the IEA’s oil industry and markets division. So far drillers are showing no signs of cracking, with the U.S. government forecasting record shale output in November, helping boost the nation’s crude supply to the highest level since 1986.

“This is a new situation and will likely elicit a new response from OPEC,” Halff said by phone from Paris yesterday. “We’re more likely to see OPEC let market forces play out and let the higher-cost production be the first one to cut.”

Brent crude, a benchmark for more than half the world’s oil, slumped as much as 2 percent today to a four-year low of $83.37 a barrel on the ICE Futures Europe exchange in London. Brent has dropped more than 20 percent from its June peak, meeting a common definition of a bear market. West Texas Intermediate crude on the New York Mercantile Exchange sank as much as 2.2 percent to $80.01, a two-year low.

Saudi Determination

Saudi Arabia has “appeared determined to defend its market share” in Asia, even at the expense of lower prices, the IEA said in a report yesterday. Kuwait’s oil minister said there may be “no room” to restore prices by trimming supply. Saudi Arabia, Iraq and Iran are offering the biggest discounts to crude buyers in Asia since at least 2009, amid speculation they are seeking to maintain market share.

“It makes perfect sense for Saudi Arabia to let the price drift down,” said Jamie Webster, an analyst in Washington at IHS Inc. “There’s a lot of discussion on what is the break-even price for shale, and whatever you believe, the reality is there’s no clear consensus. It gives the Saudis the opportunity to test” that level, he said.

Iran, OPEC’s fifth-biggest supplier, isn’t concerned about the drop in prices, which will pass, Roknoddin Javadi, deputy oil minister and managing director of National Iranian Oil Co., was quoted as saying by Mehr, the state-run news agency.

Break-Even Costs

About 2.6 million barrels of daily production, or 2.8 percent of global output, requires an oil price of $80 a barrel or more to be profitable, the IEA said. Only about 4 percent of U.S. shale output needs prices above that level, it said. Canadian synthetic oil projects are the most dependent on high prices, with about a quarter needing oil to remain above $80, the agency said.

Horizontal drilling and hydraulic fracturing in hydrocarbon-rich underground shale layers have helped U.S. oil production grow 65 percent in the past five years to the highest level since 1986. That’s reduced crude imports by more than 3.1 million barrels a day since peaking in 2005.

Production per well was projected to increase in fields in North Dakota, Texas and Colorado, the Energy Information Administration said yesterday. Companies are getting more oil per dollar spent drilling, driving costs down by as much as $30 a barrel since 2012, Morgan Stanley analyst Adam Longson said in a report Oct. 13.

Lower Prices

“Prices aren’t low enough to put these projects at risk,” Matthew Jurecky, head of oil and gas research for the London-based research company GlobalData Ltd., said by e-mail yesterday from New York. “The profit margin on most commercial unconventional oil plays will support prices as low as $50, many below that even.”

U.S. shale producers could keep pumping oil economically even if Brent dropped to $60 a barrel, Bjornar Tonhaugen, an analyst with Oslo-based Rystad Energy, said in an e-mailed report yesterday. Brent would need to remain at $50 a barrel for 12 months for North American shale output to drop by 500,000 barrels a day, he said. Morgan Stanley (MS:US) said break-even costs at the Eagle Ford shale formation in Texas range from $30 to $60 a barrel.

“We continue to be impressed by how much operators are improving their operations,” R.T. Dukes, an upstream analyst for Wood Mackenzie Ltd. in Houston, said yesterday by phone. “There’s enough out there that significant development would continue even at $75 or $80.”

Expensive Projects

Oil may have already fallen sufficiently to curb the most expensive shale projects, according to estimates from Goldman Sachs Group Inc. Drilling may slow down in North Dakota with WTI below $90 a barrel, Jeff Currie, the bank’s head of commodities research, said in an interview in London on Oct. 1. Producers in the area decreased activity when WTI plunged below this level in 2012, Currie said.

Jefferies LLC, which advises on mergers and acquisitions, estimates that a drop to $80 a barrel or lower in WTI would trigger a reduction in drilling operations, Ralph Eads, the bank’s vice chairman and global head of energy investment banking, said in an Oct. 1 interview.

Weaker Demand

Global oil consumption will expand by about 650,000 barrels a day this year to 92.7 million, the lowest growth since 2009 and about half the increase projected in June, the IEA said. OPEC boosted production in September, pumping 30.47 million barrels a day, the most since August 2013, the group said Oct. 10 in its latest monthly oil market report. Its next meeting is scheduled for Nov. 27 in Vienna.

Saudi Arabia, which pumped almost one-third of the group’s output last month, won’t alter its supplies much between now and the end of the year, a person familiar with its policy said on Oct. 3.

“They’ve not come out and said ‘we will do what it takes to balance the market’,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Right now the economy is weak, and demand is weak in Europe and China. The market wants to see something fairly dramatic.”

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net; Dan Murtaugh in Houston at dmurtaugh@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net; Alaric Nightingale at anightingal1@bloomberg.net Stephen Cunningham

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Permalink Reply by Skip Peel - Mineral Consultant on October 29, 2014 at 4:34

OPEC's Badri sees little output change in 2015, says don't panic on oil drop  10:41am EDT  By Alex Lawler and David Sheppard  reuters.com

LONDON (Reuters) - OPEC's oil production is unlikely to change much in 2015 and there is no need to panic at the crude price drop, OPEC's secretary general said on Wednesday, adding to indications the exporter group is in no hurry to cut output.

Abdullah al-Badri also said output of higher-cost oil supplies such as shale would be curbed if oil remained at around $85 a barrel, while the Organization of the Petroleum Exporting Countries enjoys lower costs and will see higher demand for its crude in the longer term.

Oil's drop below the $100-mark, the level many OPEC members had endorsed, has raised the question of whether OPEC will cut supply when it meets in November. Badri said OPEC's output was unlikely to change much next year, adding to signs a decision to cut in November is unlikely.

"I don't think 2015 will be far away from 2014 in terms of production," Badri told reporters in London at the annual Oil & Money conference. "There is nothing wrong with the market."

Brent crude LCOc1 has dropped more than a quarter from above $115 per barrel in June as abundant supplies of high-quality oil such as U.S. shale have overwhelmed demand in many markets, filling stocks worldwide.

But lower prices pose a threat to supply outside OPEC. While OPEC's oil production costs are low, as much as half of shale output would be under threat if prices remain at current levels, Badri said.

"If prices stay at $85, we will see a lot of investment, a lot of oil, going out of the market," he told the conference. "About 65 percent of the producers, they have high costs. Not OPEC."

Badri did not predict the outcome of OPEC's meeting on Nov. 27, saying the decision was up to the group's oil ministers, and appealed for calm over the decline in prices.

"We do not see much change in the fundamentals. Demand is still growing, supply is also growing. OPEC is reviewing the situation," he said.

"The most important thing is we should not panic," he said. "Unfortunately, everybody is panicking. We really need to sit, and think and see how this will develop."

He dismissed suggestions that OPEC countries, in setting lower official selling prices for their crude oil, have embarked on a price war to preserve market share.

PRICE FLOOR

Badri declined to specify a level at which oil prices might find a floor, saying OPEC did not have a price target but would instead leave that to the market.

"OPEC's average price will still be $100 at the end of this year so we are fine for 2014," he said. "The fundamentals do not reflect this low price."

"OPEC does not have a price target. We must let the market settle down."

Brent LCOc1 was trading around $87.30 by 10.30 a.m. EDT after reaching a four-year low of $82.60 two weeks ago.

Badri said last month that he expected OPEC to lower its oil output target when it meets in Vienna, which would be its first formal output cut since the 2008 financial crisis.

OPEC has a production target of 30 million barrels per day (bpd) and Badri suggested last month that this should be cut to around 29.5 million bpd.

Since then, OPEC members Iran and Kuwait have said a cut in output at the meeting was unlikely. Top producer Saudi Arabia has yet to comment publicly.

Badri reiterated that supplies from rival producers, such as shale oil, were not a threat to OPEC long-term and said OPEC had to be ready to pump far more in future.

"In the longer term, OPEC must be ready to produce. Around 2018-2020, U.S. tight oil will slow down," he said. "By 2040, OPEC must be ready to produce 40 million bpd of oil, and 50 million bpd of liquids, that's crude and natural gas liquids."

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