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Permalink Reply by Skip Peel - Mineral Consultant on July 27, 2017 at 3:59

Agreed. And I think stockholders, investors and Private Equity are concerned for another crash in prices and another round of bankruptcies.  Of course those same "enablers" are largely responsible for the current lack of restraint in company management.  I've got a sinking feeling of, here we go again.

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Permalink Reply by shelby on July 27, 2017 at 4:07

Skip,

Thanks for posting. My question is why do natural gas prices have to be tied to the

continuing decline in oil prices. With the potential of export opportunities of LNG, to

Europe and Asia, including uptick in domestic use, supplanting coal; wind, and solar,

(as a more efficient and abundant fuel) why shouldn't  natural gas set it's own "benchmark"

of commodity value, not associated to the historic ties with the crude oil factor?

Shelby

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Permalink Reply by Skip Peel - Mineral Consultant on July 27, 2017 at 4:16

Shelby~

All that Permian "oil" production produces natural gas as a by-product.  Even though the Permian is basically an oil play, it currently produces more natural gas than the Haynesville.  The key here is the by-product part.  Since oil is the target and company economic decisions are made on liquids production, there is no need to seek the best price for NG.  The long period of flaring that residual gas is ending as NG pipelines are being completed to connect to markets. Corpus Christi in particular is seeing a lot of new infrastructure coming online.  Natural gas from oily plays, particularly the Permian Basin, will serve as a cap on NG prices in the greater Gulf of Mexico region.  New demand will have to offset all that new, and cheap, supply.  From what I read it does not appear currently that new demand growth can offset the current level of NG production.  The more oil production, the lower for longer NG prices.

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Permalink Reply by shelby on July 27, 2017 at 4:22

Skip,

That sounds "yuck", but, I agree with your prognosis for the future. It is hard to believe that Permian oil production, flares off

more gas than is presently being produced in the Haynesville Play; what a waste of resources, and negative environmental impact. Hope this changes.

Thanks

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Permalink Reply by Skip Peel - Mineral Consultant on July 27, 2017 at 4:25

The Permian "produces" more than the Haynesville but not all of that production is flared.  It was some years back but not now.  Now some significant portion is finding transportation opportunities to markets.  Even if a Permian operator received $2 per mcf, in their mind that would be basically all profit.

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Permalink Reply by Skip Peel - Mineral Consultant on July 28, 2017 at 3:56

Other Companies follow Anadarko in cutting spending.  Hopefully this trend will continue.

Shale oil players are cutting spending on drilling, and investors could reward them

Tom DiChristopher CNBC.com

• U.S. shale oil drillers are starting to cut their 2017 capital spending plans after oil prices slumped in the second quarter.

How investors respond to similar announcements going forward could determine whether they'll reward drillers for exercising financial discipline.

Shale oil drillers have seen the writing on the wall, and it says: "Slow down."

As the energy sector begins reporting earnings, independent oil companies are announcing plans to throttle back spending this year after a price rally stalled in the second quarter, leaving U.S. crude languishing below $50 a barrel for much of the period.

"What I've said in the past is $50 is kind of the line of demarcation," said Rob Thummel, portfolio manager at Tortoise Capital Advisors. "That's exactly what we're seeing. We're seeing a decline in capex."

The pullback started with Anadarko Petroleum, a global driller with shale oil assets in Colorado and Texas. The mini-major announced it would reduce its 2017 exploration and production budget by about $250 million. Going forward, the company will determine its spending depending on how much cash it generates and the returns on investments it realizes, Anadarko CEO Robert Walker said on Tuesday.

"We sincerely believe the volatility of the current operating environment requires financial discipline. And as I have said many times, pursuing growth without adequate returns is something we will avoid," he told analysts.

Over the last two days, big producers like ConocoPhillips and Hess, as well as smaller regional driller Whiting Petroleum followed suit.

That's welcome news to some analysts who are growing concerned that drillers are hiking output at the expense of financial discipline.

Until now, producers have been worried about cutting back spending because they believe investors want production growth above all else, said Timothy Rezvan, managing director of energy research at investment bank Mizuho Americas. Investor reaction to capital spending cuts announced during the reporting period will signal whether a shift in investor sentiment is underway, he said.

Investors have not historically rewarded drillers for cutting capital spending because it usually leads to lower production and revenues, but that could be changing, said Thummel.

"Spending within your cash flow is becoming a more important element for all oil and gas producers at this time," he said. "Outspending your cash flow is something that I think investors are becoming less comfortable with."

ConocoPhillips CEO Ryan Lance stressed the importance of generating cash flow while lowering the cost of producing oil.

"This is the right approach for value creation in the upstream sector, especially at a time of uncertainty in the commodity markets," he said in a statement.

There is some evidence investors like what they see, though Thummel cautioned against calling it a trend just yet.

Shares of Anadarko Petroleum are up about 4 percent over the last two days, despite the company missing expectations on key metrics. ConocoPhillips and Hess were up 1.2 percent and 0.5 percent, respectively, on Thursday despite posting quarterly losses.

Whiting, one of the dominant independent drillers in North Dakota's Bakken shale, saw its shares slump 4 percent on Thursday after also turning in a loss for the quarter.

 

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