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  • Should the Industry be Alarmed by Falling Oil Prices?

    Should industry be alarmed by falling oil prices? IEA’s plan to draw down 60 million barrels of emergency oil stocks (including 30 million barrels from the U.S. SPR) pushed Nymex crude futures to their lowest level of the year. The IEA action is a response to recent OPEC disarray over whether or not to make up the Libyan shortfall.

     

    The Land Rig Newsletter team, in the latest issue of the Biweekly Report, contends that ultimately the impact on U.S. liquids drilling will prove to be inconsequential in the greater scheme of things. First, Saudi Arabia has already signaled its intent to unilaterally and indefinitely offset the loss of Libyan supply despite OPEC’s lack of cohesion on the issue. In terms of overall market concerns, the move simply forestalls any Saudi urgency to ramp up supply. Second, the main driver in U.S. liquids drilling is not high oil prices but surging demand for NGLs. Thanks to growing supplies of low-cost ethane feedstock spawned by the liquids drilling boom, the U.S. is enjoying a spike in exports of petrochemicals.

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  • Other Tight Rock Resource Plays Continue to Emerge

    Last year Chesapeake CEO Aubrey McClendon suggested that there were no more “major” shale discoveries to be made in the U.S.  Some may interpret that as an imminent swan song for the resource plays that have transformed the nation’s energy scene. However, The Land Rig Newsletter team contends that there are a lot of other tight rock resource plays emerging that in the aggregate could amount to something pretty major.

     

    In the June 2 Unconventional Drilling Report, the LRNL team posits that liquids-focused tight rock resource plays will continue to proliferate in the most venerable of oil arenas, e.g. Oklahoma and Texas, even if there are no more “major” plays on the order of the Eagle Ford to be confirmed. A flurry of mergers, acquisitions, and joint ventures will continue this year, spurring a fresh wave of drilling in these “lesser” liquids plays that will extend well into 2012—assuming oil prices hold up. But unconventional rig count gains will be reined in by softness in gas shale tallies that will probably persist through next year.

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  • U.S. Traditional Rig Count Approaches 800

    The traditional oil rig count (those drilling >5,000 ft) is approaching 800, and the total oil rig count surpassed 900 for the first time ever in The Land Rig Newsletter’s Biweekly Report. The oil rig count has added more than 100 units since the first of the year—a testament to the power of $100+/barrel oil—with more than half that gain coming from Texas, Oklahoma, and North Dakota. Oil rigs’ market share has not dipped below 50% this year and even added a couple percentage points in the latest period.

     

    Meanwhile, the total U.S. land rig count April 22 climbed out of the 1,690s to settle at 1,730, while the traditional rig count rose to 1,596. Both counts are the highest since December 2008, in which the total U.S. tally peaked at 2,085. And yet the 2011 numbers are down. The 1Q 2011 average tally fell by 25 rigs, and the rig count YTD is down 10 units from the 4Q 2010 average. Low gas prices have been a factor, as were winter weather and equipment/service/infrastructure capacity constraints.

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  • Familiar Themes Resonate at IPAA Investor Conference

    Familiar themes continued to resonate at last week’s IPAA investor conference in New York:  Liquids rule, natural gas is in the tank and likely to be there for a while, frac crews are hard to come by, and takeaway/processing issues are everywhere. One of the more interesting comments heard at the conference pointed to the industry putting another 200 rigs to work this year, followed by another 200 rigs in 2012.

     

    Generally, The Land Rig Newsletter team believes the winds are blowing in a positive direction for adding rigs—relatively high oil prices driven by strong global demand and political instability in the Middle East. However, crosswinds from known—as well as unforeseen—sources will likely take some of the wind out of the sails, causing one to remain somewhat skeptical of such robust growth. Whether it’s the Rockies, Midcontinent, or Appalachia, it’s the same story:  Plays are more complicated than commonly thought, frac crews are in short supply, and takeaway constraints are either present or near.

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  • Unconventional Oil Rig Count About to Hit 250 Level

    The driller contractor community should have a busy year, according to The Land Rig Newsletter team in the latest issue of The Unconventional Drilling Report. Oil rigs are about to pierce the 250 level for unconventional plays covered in the UDR, up from 177 in the inaugural July issue. Could it hit 300 by midyear? It is possible. Since October, the count has expanded by 51. Operators are throttling up development efforts in liquids plays with proven economics and are putting the pedal to the metal at identifying and appraising new liquids opportunities.

     

    Crude prices remain at levels that support ongoing exploration for unconventional oil and liquids in the U.S., and downside risks appear manageable. This was particularly evident at this year’s winter NAPE conference. The Niobrara, Wolfberry, and Bakken all had strong showings in the exhibit hall. Moreover, industry “buzz” at the conference can be summed up by one comment: “If you have a good play, money is not an issue. There is more money available now than ever before.” 

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  • Iranian Gunboats Cause Concern for Oil Prices

    Bloomberg reported after Israeli Foreign Minister Avigdor Lieberman said two Iranian gunboats are planning to move through the Suez Canal to Syria, it caused oil price to rise also spurring the concern that Middle Eastern oil shipments may be disrupted. Crude oil for March delivery gained $0.67 to settle at $84.99 a barrel on the New York Mercantile Exchange.

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