The DUCs are back in the news.  Not that they ever left.  Oil companies are starting to bring their Drilled but UnCompleted wells online.  The reason they are bringing them online is that oil prices have stayed above $40/bbl for about a month.  The money invested in those wells is sunk cost at this point, and it won’t take as much to complete them as it will to drill new wells, so it’s cheap product for the companies that own them.  Wood Mackenzie’s Alex Beeker thinks that the number of DUCs will drop by 400 next month.  Considering that there were about 1700 in March, that’s a big drop.

Two more natural gas fired power plants are being planned in Pennsylvania.  Link is to Marcellus Drilling News, where we get a lot of our oil and gas news.

Eclipse Resources drilled a well with a lateral of 18,500 feet.  That’s 3.5 miles!  That’s a long well.  They drilled it in 18 days!  That’s fast.

Tim Maverick with Seeking Alpha thinks that Mexico’s demand for natural gas is what’s going to keep the U.S. natural gas industry alive.

A study has shown what natural gas has done for the manufacturing industry in the United States.  We always knew that itw as a good thing, but now we have actual numbers.

The United States is still the worlds largest producer of petroleum and natural gas hydrocarbons according to the US EIA.  Anyone wondering why we have an oversupply of either only needs to take a quick look at the first chart in the article.  Go USA!  OK, so we actually kind of shot ourselves in the foot.  Not just kind of, but dead on from point blank range.  But if you’re one for tradition it should make you feel good to know that the oil and gas industry has been doing exactly this since its inception.  Produce as much as you can while the demand and price are high.  Overproduce while the price drops.  Get out of the market or go bankrupt when the price drops so low you can’t make money.  Everybody left continue to produce until the market stabilizes.  When prices start to climb get back in the game and start producing again.  Lather, rinse, repeat.

In the same vein of thought, gas storage numbers were greater last week than they were last year for the same week.  However, they were below the five year average.  The article suggests that the slightly lower numbers are because of restrictions on production more than anything.  That makes sense.  We have fewer rigs running than at any time since we started keeping track of that, and production is actually starting to drop off across the US.  I expect production to continue to drop off for the rest of the summer and fall.  If prices rise above $2.50/MCF we might see more rigs fired up, but we might not.  It’s possible we could hit storage limits this fall and if we do producers won’t have much incentive to drill new wells.

This article at The Week, a British site, suggests that breaking through the $50/bbl price will be a boost psychologically to the price of oil.  Now that it has done that, people actually think that it will stay up there for a while.  The article includes a pretty good overview discussion of the price of oil and the economy, and is worth a few minutes to read.

OPEC met again, and didn’t accomplish much.  What they did accomplish was to agree to a new secretary general, Sanusi Barkindo of Nigeria.  Previously, the secretary general was Abdulla al-Badri.  Saudi Arabia and Iran had pushed hard for their own replacement candidates over the last few years, resulting in al-Badri being automatically extended.  It’s interesting that the new secretary general is from Nigeria, a country that is having serious troubles with civil war and rebels blowing up the country’s pipelines.  OPEC also was able to agree to admit a new member, the country of Gabon.

Now that prices are at $50/bbl and kind of seem to be stable around that number, everyone is wondering whether shale drilling is going to pick back up.  This article over at oilprice.com doesn’t have answers, but analyzes the current situation well.

Natural gas prices have hit and exceeded, but not stayed consistently above, $2.50/MCF.

Here’s someone who thinks that $50/bbl oil isn’t going to last.  He starts out talking about stock market factors which, to my mind, aren’t as important as production/demand.  But then he gets into the oversupply, pointing out that there are a whole bunch of tankers sitting offshore full of oil just waiting for the price of oil to go a little higher.  Seems like a bad move to me, but that’s not my line of business.  Regardless, those tankers are going to have to unload at some point, and they hold a good chunk of the 1 billion to 3 billion extra barrels of oil that have been floating around for a while (no pun intended).  I’ve personally been mystified by the increase in oil prices.  I haven’t seen what I thought was enough of a cut in production to warrant the significant increase in price.  I wouldn’t be surprised if the price of oil did take a dive for a while.  I’ll be more confident that oil prices are going to stay up when American frackers start setting idled rigs back up.

RBN Energy is doing a two-part series about LNG and its effect on the natural gas market.  Since most of what we produce here in West Virginia is natural gas and RBN Energy does very well-researched work, this is highly recommended reading.

A Tennessee man, Pat Riley, has coordinated a coast-to-coast road rally to show off the possibility of CNG.  Apparently you can travel coast-to-coast on CNG because there are enough fueling stations to do so.

OilPrice.com points out that when oil and gas prices start to rise (which they have been recently) it might be hard for oil and gas companies to find the skilled workers they need to start production back up in a timely manner.  We’ve mentioned this possible problem in previous State of Oil and Gas posts.  If that’s the case, we may be in for a roller coaster ride of oil and gas prices in coming years.

This article at oilpro.com says that DUCs won’t get completed in large numbers until oil hits $100/bbl because the companies won’t be able to finance the fracking of the DUCs.  We might be staring down the beginning of really high oil prices.  In oil and gas, worldwide supply and demand are the main factors, but financing and money drives everything else.

The Saudi strategy of producing enough oil for anyone that wants to buy from them makes it harder for alternative energy sources to get funding.

In the last month people have become more confident that gas prices are going to climb.  Gas production is dropping off and demand is increasing.  It shouldn’t be a whole lot longer before leasing activity picks up and royalty checks start getting bigger rather than smaller.  Following are the articles we’ve read in the last month that we think are interesting or important for West Virginia mineral and royalty owners.  Enjoy!

Natural gas-fired power generation is increasing.  This article gives some numbers.  Also, the majority of gas-fired power plants are in shale gas producing regions.  Big surprise, that……

It’s the day after OPEC met at DOHA, and oil prices haven’t dropped much.  Now that’s a surprise.  Why did it only dip a little?  Oil workers in Kuwait went on strike.  That’s really odd timing.  I’d like to think that it’s coincidental, and it may be as Kuwait really doesn’t want to cut back on production in spite of low oil prices.  It just seems like awfully good timing.  Prices stay up for a short period, then drop after the strike is resolved, and nobody blames the Saudis.  In the meantime, American producers still feel the pressure of low prices and control over those prices remains in the Middle East.

This Bloomberg articles points out the very interesting fact that sometime in the end of 2016, the amount of overproduction will drop from 1.5 million barrels per day to just 200,000 barrels per day.  It’s still overproduction, though.  Until there is underproduction we won’t see prices high enough to support American producers.  There is still a stockpile of about 3 billion barrels of oil out there, after all.

This article from the Telegraph in England has a good rundown of countries and influences on oil prices.  Of greater interest is the writer’s opinion that the last OPEC meeting was meaningless, regardless of the outcome; that the supply/demand balance is already pretty precarious, and the next shortage of oil is right around the corner; and that the Saudis have lost control of OPEC, or perhaps better said, OPEC no longer exists as an effective organization.  With those premises, it makes one wonder whether the strike in Kuwait wasn’t possibly engineered at some level to make it look like the last OPEC meeting was actually effective, but then the meeting fell apart and the strike continued anyways because the reasons for striking were all there.  It’s tin-foil-hat thinking, but who knows?  Where billions of dollars are on the line all kinds of things are possible.

Southwestern Energy, in spite of posting a 1.1 billion dollar loss last year (yes, billion with a “b”) is renewing leases here in West Virginia and appears to be here for the long-term.  The article focuses on the decreasing numbers of rigs, but it mentions lease renewal and it’s a lot of fun to try to read between the lines of the executive quotes and figure out what’s actually going on.

The strike in Kuwait is over, so they’ll be bringing their full production back online.

The Trans-Alaska pipeline is back online after a fire put it out of use for a few days.  That little incident propped up oil prices for a few days.

The international price for liquefied natural gas (LNG) is dropping.  It’s the usual story, too much supply and not enough demand (WSJ: Google the headline and click the link Google provides to avoid the paywall).  Feeding the supply side is American natural gas sourced from fracking companies and liquefied at brand new plants for shipment overseas.  Pushing the demand side is Japanese electrical generation which is switching over to solar and turning back on some nuclear plants that were closed after the Fukushima disaster.  Natural gas markets are not yet global, but they’re moving that way.  It won’t be long before we’re more worried about the international benchmark for natural gas than we are the national benchmark.  For now it’s not a huge factor for West Virginia, but it’s something to keep an eye on.

Iran has discovered a shale oil field.  It’s nothing that will affect prices or supply at this time.  Iran produces oil at about $10/bbl and shale oil costs somewhere north of $40/bbl to produce, so it doesn’t make sense to develop the shale until oil prices go up significantly.  It’s there, though, and will be another source of oil in the future.

Christine Buurma with The Washington Post engages in a little speculation regarding the price of natural gas.  She’s bearish, while admitting that prices are climbing a bit.  She points to the Marcellus being such an inexpensive place to produce, as well as DUCs in the Marcellus, as well as increased efficiency on the part of drillers, as reasons why she doesn’t see gas prices increasing much in the near future.  A hot summer would go a long way toward increasing demand, which would drive prices up.  She’s not convinced, though, arguing that natural gas prices rarely reach predicted highs, and quoting an equity analyst, Mark Hanson with Morningstar in Chicago, as saying you should never underestimate the Marcellus.  She’s probably right.  It’s going to be 2017 before we see significant recovery of natural gas prices to the point where oil and gas companies start taking leases and producing at prices that return much of a royalty to our customers.

CNN Money reports that Saudi Arabia thinks that oil prices will start to rise at the beginning of 2017.  Interestingly, oil prices have been on the rise since February of this year.  They must be expecting significant increases, or perhaps a decrease in price between now and then.  The same article says the IEA (Internation Energy Agency) thinks global demand will rise slightly above global supply in the second half of this year.  Saudi Arabia, of course, will produce as much oil as people will buy from it.  Since we’re in May of 2016, the second half of the year is less than a month off.  Interesting times in the energy sector.  Interesting times.

A Royal Dutch Shell off-shore oil rig spilled about 90,000 gallons (2000 barrels) of crude and shut down.  The shut down drove oil prices up significantly during the day, but when word came down that the rig would be back online later in the day prices settled back down to about where they had started.  Oil and gas prices are so fickle.  However, the prices have been around $45/bbl and just above $2/MCF for quite a while.  We may be seeing better royalty checks and more leasing in the near future.

The fires around Fort McMurray have been heavily reported.  We only link to this article to provide some information as to how it affected oil prices.