The energy sector is cautiously confident, according to this article at Fortune.com.  The key phrase from a quote in the article is, “We’re beginning to put capital back to work…”.  That means investors are willing to put money into the industry.  That means that work will start to pick up, development will increase, jobs will be provided, hydrocarbons will be produced.  However, I’m even more glad that there is caution in the industry.  That means we may not see an extreme boom/bust cycle soon.  When things move slowly, people can plan for it and prepare for it.  You can plan for a career.  When things move fast, nobody benefits–even the money men lose sometimes, and that’s saying something.  Here’s to cautious confidence in the oil and gas industry.

The Wolfcamp formation in the Permian Basin in Texas is not new, but we now have some new data that shows it will be ridiculously prolific.  Here is a very short write-up about it.  It’s interesting to see how new technologies have changed the future of oil and gas production.  Previously, there were a lot of people who were worried about “peak oil”, the idea that the world was running out of oil to produce.  The theory said, in essence, that on a specific day (which varied according to who was doing the calculating) we would produce the most oil ever, and never be able to produce more.  It seems we have put off peak oil for quite a while.  New technology, namely horizontal fracking, did it.

Here’s an article from Japantoday.com that says Trump is unlikely to ban Saudi oil.  It gets into the history of OPEC for a while, but the practical reasons for not banning Saudi oil are interesting.

There is some slight chance that the next OPEC meeting in Vienna on November 30 could result in a production freeze or cut.  This article by Richard Zeits over at Seeking Alpha gets into some detail about it, but the short version is that all producers stand to benefit from increased prices.

While Donald Trump plans to make significant changes to the Clean Power Plan, there’s at least one energy company CEO who thinks it won’t make a difference.  Gerry Anderson of DTE Energy in Michigan says that DTE is making the change over from coal to natural gas (and renewables) regardless.  Anderson also says that he doesn’t know anybody who is building a new coal plant.  While this is great news for the northern part of West Virginia, the southern part of the state is still hurting badly from the loss of coal-related jobs.  Luckily, there are a couple of new metallurgical coal mines being opened up on the West Virginia/Virginia border.  If I were reliant on the coal industry for my livelihood, thought, I’d be figuring out how to make a change quick.

It’s November 29, the day before the next OPEC meeting.  Saudi Arabia has proposed a 4.5% cut for itself if Iran will freeze at 3.8 million barrels per day and if Russia will agree to cut production.  That’s a pretty aggressive stance, and Iran has unsurprisingly resisted that proposal, with oil prices falling over $1.50 per barrel on that news.  This article says that Saudi Arabian Energy Minister Khalid Al-Falih is setting the stage for failure because he doesn’t like Trump’s campaign promise to ban Saudi oil imports.  While Trump’s campaign promises are looking more like suggestions these days, it makes sense to set someone else up as the scapegoat.  However, when going in to negotiations you always set your expectations high, and that’s what Saudi Arabia has done.  Any cut/freeze combo right now would bring prices well up over $50/bbl for at least a few months.  Attacks on Nigerian pipelines have boosted prices this month, and Nigeria doesn’t provide a huge number of barrels to the world market.

The United States became a net exporter of natural gas in the last couple of months.  Most of the exports went through pipelines to Mexico and Canada, but some went overseas in the form of LNG from the Sabine Pass plant in Louisiana.  This shipment of LNG to China, for example.  Additional LNG plants are expected to come online in late 2017 and in 2018, so exports should continue to pick up.

Good news for the Marcellus/Utica area, but mostly the Ohio portion of it.  The REX pipeline is about to expand from 1.8 billion cubic feet per day to 2.6 billion cubic feet per day.  It won’t have a direct effect on West Virginia, but any added capacity from the area is better than none.

Japanese environmentalists are excited about increased fracking in America, and oppose nuclear power.  American environmentalists are pretty much the opposite.  Kind of interesting.

November 30, 2016: The early news is that OPEC has agreed to cut production by 1.2 million barrels per day. That is shocking, to say the least.  Oil prices are up by $3.30 already, and the day has hardly begun.  It will be interesting to see if the price continues to climb throughout the day, or if the markets will think that is enough of a jump.

The highest change that we saw today was $4.40/bbl.  Markets closed at $3.35/bbl higher than they had opened.  Seems $4.40 up was just a little too much for the markets.

December 1, 2016:  Oil is up another dollar and fifty cents this morning.  The price at my local gas station went up ten cents overnight.  As usual, gasoline prices go up a lot faster than they go down.

Some articles about the Wolfcamp formation have come out saying that it will be uneconomic to produce at current ($45/bbl) prices.  The numbers he used look conservative, as horizontal wells can and do regularly drain more acreage than he allows for.  However, his main point stands: the hydrocarbons are worth a lot of money, but nobody in the media took the time to figure out how much it would take to get out of the ground.

Great news for West Virginia mineral and royalty owners!  The price of natural gas is up over $3.40/MCF this morning!  Those are excellent, healthy numbers, and should result in a nice increase in royalty check numbers.

Since it’s the first of December, a quick look at the winter forecast is worth doing.  Pretty much everybody agrees that it’s likely to be a little colder than average in the north, and about average across most of the country, with the south above average.  Since the majority of natural gas use comes in the Northeast and Midwest, that should indicate that we’ll use up a lot of natural gas this winter.  We can expect higher natural gas prices because of that.  Natural gas prices probably won’t climb up to $4.00/MCF this winter, but I wouldn’t be too surprised to see them break $3.70/MCF or even $3.80/MCF for long periods.

Oil prices have been dropping, getting below $44/bbl at one point.  All because nobody believes OPEC will be able to put a production cut deal in place.

Donald Trump has won the Presidency, and nobody’s exactly sure what that’s going to do for oil prices.  This CNBC article throws out a few of the things that are going to factor in, such as a weakening dollar, better relations with Russia encouraging investment in Russian oil infrastructure, and Trump possibly re-instating the sanction on Iran.  Overall, the article thinks the price of oil will go down.

One source thinks that natural gas prices could rise above $25/MCF this winter.  The article doesn’t specify, but I suspect that’s the price to consumers, not the price at a hub.  Still, that’s considerably more than the current price to consumers.

Gas production for the United States as a whole dropped a lot in October.  The disappointing news is that the Marcellus/Utica region decreased production because it didn’t have anywhere to send the gas. This in spite of the Cheniere Energy gas-to-liquids plant in Louisiana ramping up.  Based off this article, we’d say that the southern part of the country is going to see higher natural gas prices, while the northern part of the country is going to see lower natural gas prices.

Deep sea rigs are being taken out of idle in a place called the Cromatry Firth, a natural deep harbor near the North Sea oil fields.  Since oil prices are down off their high of $52/bbl, it’s safe to assume that the oil industry foresees demand for oil increasing in the next year.  You don’t fire up deep sea rigs without a really good reason.

Oil prices have been as low as $42/bbl in the last few days, but are back at $45/bbl today, November 15, 2016.

The big news, of course, is yet to come.  Between now and our next update OPEC will meet and announce that it has not agreed to cut back or freeze production.  Kidding.  They surprised me last time with a framework for a deal.  Since then, of course, key players have walked back from that framework.  But the fact that they were able to get a framework in place makes one think that it’s possible they could get an actual agreement.  We’ll see.  I still think it’s highly unlikely.  Oil futures traders are hopeful, though.  That’s probably why oil prices are up to $45/bbl.

Hope everyone has a great Thanksgiving holiday next week!

Fracking companies have been increasing the length of the horizontal lateral in an attempt to increase efficiency; building one pad and using one hole to access more acres should be economically efficient.  However, a study by Bernstein Research shows that longer laterals are not necessarily more efficient.  The culprit is friction.  More pipe creates more resistance.  The result is a lower average peak rate, or put in other words, the highest amount of production you could expect from a well at it’s best is lower.

On the other hand, adding more sand (“proppant”, because it props the cracks open) to a well increases the production from the well.  That seems to be a pretty logical conclusion, since larger and (presumably) more cracks means more product can move through the formation to the well.  However, adding more proppant is a recent change.

Natural gas developers added 11 new rigs across the U.S. last week, which is a good thing at this point.  Production has been falling for a while, and new sources of production are needed to keep numbers up.  11 new rigs will probably not halt the falling production numbers, but will slow it.

Iraq is now saying it won’t cut production.  Just like that, oil prices fall.  We’re below $50/bbl again.  Now, Iraq could just be positioning for negotiation, or it could be serious.  Their excuse is that they need money to fight terrorists.  $50/bbl oil isn’t too bad for them right now, as they are still working to get production back up to pre-sanction levels.  So it’s hard to say what they will do at the next meeting.  Most experts expect Saudi Arabia to cut production anyways, so maybe Iraq will just continue to produce and take advantage of Saudi Arabia’s unilateral cuts.

Stephen Tindale is a former leader of Greenpeace, and he’s saying that fracking is an important technology, and should be encouraged.

On October 24, 2016, gas prices have dropped well below $3.00/MCF.  Last week saw warm, but not hot, weather.  This week is going to be quite cooler, so we should see a jump in prices before this gets published on November 1.

Costs for drilling gas wells are still dropping.  That means that even in a low price market it makes sense to keep drilling and producing gas.  That’s exactly what Antero is doing.  They have announced that instead of producing 1.75 billion cubic feet of gas per day during 2016, they are actually going to produce 1.8 billion cubic feet of gas per day.

It’s November 2, 2016, and oil prices and natural gas prices have fallen significantly since last month.  Oil prices have dropped for the same reasons they always do (supply/demand), but the details are unusual.  Essentially, there were a few weeks where there were drawdowns on oil storage, then all the oil that everyone expected to be there during those weeks suddenly showed up and we had the largest increase in oil storage in 34 years.  Also, the price of oil jumped when OPEC announced it would cut production, then dropped when Iraq announced it wouldn’t participate in the cut.  Is anybody really surprised by that?  The result of these factors was that prices dropped from over $50/bbl to around $45/bbl.  Regrading natural gas we have hit the “shoulder season”, the time between summer (storage) and winter (high use) where storage numbers always go up.  Temperatures were comfortable, so gas use was low, and traders for some reason decided to sell natural gas futures.  This Seeking Alpha article seems to think that traders overshot the fundamentals of the market, so the price will go back up.  Right now we’re at about $2.75/MCF.  Not horrible for gas production in West Virginia, but also not good.

Every time you turn around there is something new being built that is being powered by natural gas.  One recent example is three cruise ships being built for Carnival Cruise Lines.  They’ll be powered by liquid natural gas, which is far cleaner a fuel than what a lot of them are powered by, bunker oil.

Drilled but uncompleted wells (DUCs) are being completed.  Rumors are that by January the DUCs in the Marcellus area will be gone.  The EIA has begun publishing the estimated number of DUCs, and the Marcellus numbers don’t indicate zero DUCs by January 2017.  In fact, as of the end of August 2016 there were still 642 DUCs, down from 658 in July for a change of -11.  Even if you count January 2017, that’s only six months at 11 wells per month for 66 wells total, leaving 592 wells.  Obviously the rate of change is going to change month to month, but it’s going to have to grow an awful lot to get to zero wells left by January 2017.

A deep-water project by Statoil in the North Sea is producing oil at $10/bbl.  That’s competitive with Saudi Arabian oil.  It’s all because of standardization.  Previously, a lot of oil industry equipment was made to order.  Efforts have been made to use off-the-shelf components.  The savings are huge.  The implications are also huge.  Deep-sea projects were the most expensive projects, and consequently the first to get the ax in the recent price wars.  If they can all be made this cost-competitive, the Saudis are going to have to worry about deep ocean oil reserves affecting the market as much as they have to worry about American reserves.

An article at ArabToday.net does a good job of summarizing the supply/demand balance for natural gas in the United States.  I was a little surprised by the source, since Arabs are in the business of producing oil, but hey, guess they keep tabs on the industry at large.

The National has a good analysis of the Septmeber Algeirs OPEC meeting and its ramifications.

One thing I’ve often wondered about is why fracking hasn’t caught on better in other places?  The answer is a bit complex, involving governments, politics, investment capital, and geology.  The latter appears to have killed shale drilling in Poland, which was very excited about the prospect for a number of years.  Other countries are still working on it, such as China, but aren’t having great success as yet.  It’s something to keep an eye on.

So, after OPEC announced that they were going to agree on a price freeze at their next meeting in November, the price of a barrel of oil worked it’s way up to $52/bbl.  Then, Russia announced that it was not going to cap production and the price dropped to (so far) $50/bbl.

Saudi Arabia played everybody.  This article from the Wall Street Journal says that the Saudis were going to cut production anyways, so getting other countries to agree to a production cut really didn’t change anything for the Saudis!  The Kingdom was already producing at record highs, and those high production numbers were apparently not sustainable.  If no deal had been reached, production would have dropped off anyways.  This way, it looks like OPEC still has power to influence world oil prices.

This article over at Fortune.com says that OPEC’s influence is significantly reduced from what it used to be.  It also points out that quite a few OPEC countries would have reduced output naturally if the recent agreement had not been reached.

Just like that, there’s news that rig counts in the United States have risen.  That news is keeping oil prices from rising any farther, in fact, as of today, October 17, 2016, at 10:00 a.m., the price of oil is under $50/bbl.  After the news of OPEC’s agreement to cut production, the price of oil rose to about $52/bbl, then started a slow, steady decline.

I’ll be shocked if prices stay above $50/bbl until the next OPEC meeting in November.  After that meeting, the price of oil will probably rise to about $55 or $60, and then drop off as American companies scale up production.  That’s my free prediction for the near future, take it for what it’s worth.

There has been a lot going on in oil and gas these past two weeks, so we’re going to go ahead and post this a couple weeks early.

If Libya were to start producing a lot of oil again, it would probably drive the price of oil down some.  There was some expectation that they would start up again soon, but that expectation is now gone.  A general has seized control of all the oil ports in Libya, in opposition to the coalition government.  The government had been losing popular support for some time.  Perhaps the general will step in and take control of everything and start production back up.  Even if he does, it will take some time.  We don’t expect Libya to affect oil prices for the rest of this year.

Venezuela says that OPEC and non-OPEC countries (Iran) are close to an agreement that would limit oil production.  We’re still skeptical that an agreement will be reached.  After all, there was some belief that the Doha meeting back in April would be successful, though I rather suspect that was more wishful thinking on the part of some people than reliance on facts.

It seems that Libya is producing oil again.  Reports of two tankers with a total of over a million barrels of oil have left the country.  A Libyan official has stated that they will be producing 600,000 barrels per day within a month, and over 900,000 barrels per day by the end of the year.  If that actually happens it will drive the price of oil down some.  Whether it actually happens is not something I would bet on.  Libya is a pretty unstable country after all.  I’d let time tell on this one.

A surprising number of American companies have been able to avoid bankruptcy during the downturn in oil and natural gas prices.  They’ve had to cut costs and increase production.  One of the major factors in increasing production has been increasing the amount of sand that is flowed into the fracks.  The linked article goes into some detail that would be interesting if you’re thinking of investing in sand supply companies.

There is a lot of data in this study by Deloitte.  The long and short of it is that the oil and gas industry looks like it’s coming back.  Higher prices for both oil and gas are expected in the next couple of years.  This jives with what we’ve been reading and experiencing.

Iran has doubled exports from last year.  Libya and Nigeria are ramping up exports as well.  The increase in production from those countries is going to drive the price of oil down.  OPEC is meeting to discuss the possibility of freezing production.  Perhaps (but I really think this is a stretch) the specter of prices dropping below $40/bbl again will drive OPEC to actually come to an agreement.

On the other hand, this article from the Financial Post makes the case for a crazy future for oil prices.  Basically, it says that the lack of investment in new fields/projects is going to come back to haunt us.  It’s worth taking five or ten minutes to read.

While the oil market is interesting, the natural gas market is what really drives development in West Virginia.  There isn’t as much written about the natural gas market as it’s not a worldwide commodity with political ramifications.  It’s slowly becoming more so.  This article over at Forbes talks about how Japan’s use of natural gas is likely to rise, contrary to what most analysts think.  Sure hope so.  A lot of Japan’s natural gas will come from the Marcellus/Utica area.

Along the same vein of thought, Cheniere Energy has announced that it’s second liquefaction train at the Sabine Pass plant in Louisiana has reached Substantial Completion.  In other words, they can start liquefying gas with it.  This is interesting for us here in WV because gas from the Utica/Marcellus area will feed the Sabine Pass plant.  Demand is growing!

This article from Reuters says that while demand is growing, production is dropping off.  We’re looking at a future of stable prices for natural gas, at least for the time being.  It will be interesting to see what happens through this next winter.

That was quick, but hardly unexpected.  The price of oil is dropping on news that Iran has rejected a deal with Saudi Arabia that would have limited it to producing under 4 million barrels per day.  Iran was producing 4.1 to 4.2 million barrels per day before it had sanctions imposed on it, and it is producing about 3.6 million right now.  Iran has always stated that it wants to get back to producing over 4 million.  Talk has now turned to OPEC’s November meeting.  Do I go out on a limb and predict that OPEC will not agree to a production freeze in November?  Sure, why not.  With the understandable caveat that unpredictable events could change things.

Michael Lynch over at Forbes argues that the long-term price of oil is impossible to determine.

Jim Willis of Marcellus Drilling News attended a conference where two analysts discussed whether the Marcellus/Utica area is going to be able to make up for the slow down in gas production from other parts of the country.  Long and short, no.  There are a lot of very interesting bullet points in the article.

USA Today ran a story about wind farm projects not getting off the ground.  Part of the problem has to do with how the BLM allocates property.  The more interesting part of the story was that of 46 wind farms approved by the Obama administration since 2009, only 15 have made it into operation.  That kind of track record is going to keep wind power from competing with natural gas for a long time.

So, we were wrong about OPEC!  They agreed to agree to a production freeze at their meeting in November.  Seems there are some details to work out in the interim.  As a result, the price of oil has climbed consistently the last few days.  It hasn’t hit $50/bbl yet, but that seems almost inevitable.  Interestingly, the price of oil has hit $50/bbl once already this year.  If I recall correctly, that was also on speculation that a production freeze was in the future.  Will they end up freezing production?  Maybe.  I still rather doubt a production freeze will happen.  It just doesn’t make sense when American production companies can ramp up production pretty quickly and you’re giving them two months heads-up.  But I was wrong about this, I could be wrong about that, too.

This article over at RealMoney.com poses the question, “have American producers achieved sustainable profits?”  It doesn’t give an answer, but points out that Saudi Arabia is probably in a world of hurt either way.  It’s short and worth the read.

Chesapeake is by far and away the largest producer in the Utica Shale at 1 million acres, 146,000 BOE of production per day, and having drilled 588 new wells in 2015.  Check out the chart in this article.

It’s August 18, 2016 and oil prices continue to rise based on mere speculation that OPEC and Russia will freeze oil production.  I’ll believe that when I see it.  Gas prices are on the rise because of lower than expected storage numbers.  That makes sense.  Oil prices on the rise because OPEC is talking, yet again, about freezing production doesn’t.

This article from Seeking Alpha suggests that $50/bbl oil is here to stay.  It gives three reasons, one of which is that investors are very willing to invest in oil and gas companies still.  That is one thing that I had been wondering about.  If investors had not been willing to do so, we could have seen serious decreases in production in the near future.  Since they’re willing to, we’re a lot less likely to see a serious decrease in production and a corresponding increase in oil and gas prices.  While the article is written with oil in mind, you could easily replace the numbers for oil with numbers for gas and get the same story.

Another article from Seeking Alpha (sometimes they’ve got a lot of great stuff) is predicting that gas prices are going to continue to move higher.  If you like to read stuff from a commodity trader’s point of view, this is an article for you.

Today is September 1, 2016.  Oil prices are still hovering around $45/bbl, and gas prices are still hovering around $2.75/MCF.  We’ve seen a significant increase in the number of inquiries from potential clients who’ve been offered oil and gas leases lately.  The most interesting was an Antero Resources lease in Monongalia County.  Northeast Natural Energy has been working in Monongalia County for about a year, in the same area that Antero is working.  If NNE is interested in making some money by flipping their leases, they timed it just right.  This is good news for anybody who signed leases with NNE, because another company showing interest in the same area means that there’s good potential for production there.  We hope you Monongalia County, WV mineral rights owners get great royalty checks in the very near future!

OPEC will be meeting this month to announce that they have not reached a deal to freeze production.  Oil prices will fall when that news is announced.  Saudi princes selling oil prices short will make a bundle.  If I knew enough about trading commodities, I would make a bundle, too.  Actually, I probably wouldn’t because everybody else with half a brain will be selling short at the same time.  Or maybe I just showed my lack of knowledge about how trading commodities works?  It doesn’t matter, I do West Virginia oil and gas law.

This article has as its thesis that OPEC no longer has the power to control oil and gas prices.  I agree.  The article is interesting because it discusses the current state of the oil and gas industry, much the way this blog post does.  It’s worth a few minutes to read.

It’s September 15, 2015 and the price of gas is at $2.91/MCF and the price of oil is $43.70/bbl.  Prices have been relatively stable lately.  Drilling seems to be picking up just a little bit nationwide as the rig count has gone up a bit.  Leasing has definitely picked up in West Virginia.  We’ve picked up several new lease negotiation clients this week.  While interest in leasing up property in the northern panhandle is picking up, it also seems to be picking up in the old core, consisting of Ritchie, Tyler, Doddridge, and Harrison counties.  We’ve also run across a lease from Antero Resources in Monongalia County, which is a new interest for them.  Previously, Northeast Natural Energy and EQT were the only companies working in that county.

We’re looking forward to seeing what happens with the OPEC meeting in Algeria on September 26-28.  We fully expect them to announce that they will not be curtailing or freezing production.  We also fully expect lots of people to speculate that they will.  It would be great for American producers if they did, as that would drive prices up and give American producers an opportunity to start drilling again.

One wild card in the oil prices card deck is Libya.  That country has had civil war since it deposed Gaddafi (how many ways are there to spell his name in English?) in 2010.  Production of oil dropped from about 1.6 million bpd to about 300,000 bpd today, with a low of 80,000 at one point.  If they can get their act together, they might be able to get back to 1.6 million or more.  There are signs that the two sides are reconciling, but it’s impossible to predict.  They’ll have some rebuilding to do, too.  This article gets into the subject a little more.

The Cleveland Federal Reserve says that natural gas production has evened out, but isn’t growing.  This is from the Beige Book, which is not based on statistics, but anecdotal accounts, so make of it what you will.  It’s definitely not forward looking, but is a good overview of what has happened recently.

There has been talk about building cracker plants in the Ohio River Valley for years.  Now talk is starting to pick up about some infrastructure that would support those plants, a storage and pipeline complex that would stretch hundreds of miles along the Ohio River Valley from Monaca, PA to Catlettsburg, KY with a spur running from Charleston, WV following the Kanawha River to the Ohio River.  Dubbed the Appalachian Storage Hub, it would hold 110 million barrels of liquid ethane.

There are two big suppliers for oil and gas drillers, Halliburton and Schlumberger.  Both are confident that drilling is picking up.

Consol Energy is re-starting its drilling program.  Unfortunately for our clients, it’s going to be in Ohio and Pennsylvania only.  As we still have an abundance of gas I think it’s unlikely that Consol will begin drilling or even taking leases in West Virginia in the near future.  We’ll have to see gas prices hit $3.50/MCF consistently before that happens, I believe.

Speaking of gas prices, today is July 27, 2016, and prices have been slowly sliding down from a high of about $3.00/MCF a couple weeks ago. This is in spite of hot weather increasing demand for natural gas for power generation.  The decrease in price would have to be because we still have a lot more gas in storage than we have had in the recent past, and with the increase in gas prices a few drilling rigs have been brought back online.  Production numbers are dropping off, but not quickly.  We won’t hit storage capacity at the end of storage season like some people were predicting this spring, but we will still have record amounts of gas in storage.

Bloomberg.com says that the fracklog (total number of drilled but not fracked wells) is beginning to shrink.  The article only treats oil plays, but the same thing holds true for gas plays.  Drilling has slowed, and fracking old wells can be quite a bit cheaper that drilling new ones, so it makes sense to do that first when gas prices start to climb.

Marketwatch.com says that falling oil prices are due more to a strengthening dollar than to any fundamental changes in supply and demand.  Long story short, oil is bought and sold with US dollars.  When the dollar goes up in value (strengthens) you need more Saudi Arabian riyals to buy the same barrel of oil.  If buyers don’t have more riyals to give for the same barrel of oil, the price of that barrel of oil has to go down.  Lately the US dollar has been strong, so the price of oil has been dropping.  This kind of thing doesn’t affect natural gas prices right now because natural gas is mostly a national commodity.  As we export more and more LNG we may begin to see the strength of the dollar begin to affect LNG prices, too.

Here’s an argument from nakedcapitalism.com that says we’re likely to drop to $36/bbl again pretty soon.  The long and short of it is that once prices hit $50/bbl for a little while investment money started to flow to developers, and developers started drilling, and drilling increased oil supply, and since we have tons of oil in storage already the little bit of extra supply decreased the value of oil.  Pretty sensible, really.

This Reuters article goes into a lot of what I’ve been thinking regarding what’s going to happen when oil and gas prices start to really recover.  The only thing it doesn’t touch on is whether banks and investors will be willing to put money into oil and gas right away.  I won’t summarize the article because there’s not much fluff.  Take a few minutes to read it.  It’s well worth it.

July 29, 2016:  So, this time of year refineries are shutting down for scheduled maintenance.  That means we won’t be using about 1.2 million barrels of oil per day for a while.  Since it’s scheduled, maybe the markets have planned for it and it won’t affect the price of a barrel of oil.  Maybe it will.  It will be interesting to see.

An article from NGI (subscription required) says that a lot of previous oilfield workers are not coming back to work in the “patch”.  They got burned last time, and don’t plan on getting burned again.  Can’t say that I blame them.  The market is improving, but there is no promise of a boom this next time around.  In fact, horizontal fracking may make it so that there is never another boom.  Interestingly, the lack of skilled workers could bring about another boom, as companies need skilled workers to produce, and if there’s not enough skilled workers we could end up with a lack of product, which will result in a high price.

Forbes has an excellent article which points out that oil has been overpriced for most of this year.  I was constantly surprised, pleasantly surprised, but surprised nonetheless, as I watched oil prices rise like they did.  when they hit $50/bbl and stayed close to it for a while I figured a lot of people knew something I didn’t.  I knew that production numbers had dropped off, and figured that that must have been the reason prices were climbing.  Now that oil prices are dropping again I think maybe I was smarter than I realized.  That’s always a nice thought, even if it’s after the fact.  Now I am of the opinion that speculators drove the price up, and they’re driving it back down.  There was never a good fundamental reason for the price of oil to be or stay up.  We have a surplus of over 3 billion barrels (maybe quite a bit more unreported).  While production has dropped off, we would have to see ridiculous drops in production to really chew up a significant amount of that 3 billion barrels.

Here’s an interesting experimental technique for fracking rock that’s worth looking at.  Hard to say if it will be better than hydraulic fracturing, but it will be interesting to follow.

August 5, 2016: gas prices are still hovering around $2.70-$2.80/MCF.  This is in spite of a drawdown on natural gas reserves instead of an increase in storage reserves.  We took 6 billion cubic feet out of storage last week, and prices still aren’t going up much.  This article says it’s probably because we’re coming to the end of the summer, and speculators, er, investors are staring down the barrel at the end of September, all of October, and part of November when demand for natural gas will naturally be going down.  Can’t say as I can disagree with ’em.

An article over at kallanishenergy.com says that drilling is going to pick up again in early 2017.  The demand for the gas is there, as DUCs (drilled but uncompleted wells) are diminishing, down from 2600 in October 2015 to 1500 in May of 2016.  The only thing to do when DUCs run out is to drill new wells.  Makes sense.

Over the last few days people have been listening as OPEC talks about possibly cutting production.  Oil prices have gone up just a bit because of it.  People are just nuts.  It makes no sense for OPEC to cut production.  If they do, they will lose market share (clients, sales, long-term contracts) to American companies.  We can ramp up production very quickly and absorb small, short-term demand.  Large, long-term demand might be a little harder, but not much harder.  Saudi Arabia will not cut production because if they do they will lose customers.  Iran is still increasing production, Venezuela would love to sell oil for a higher price and will do so any chance it gets, if Libya gets its act together they could bring another million barrels per day online in a year or so, American producers can drill wells and have them online within a few months.  It’s rather like Whack-A-Mole.  One place stops producing, another will pop up with additional production.  Don’t forget about the 3 billion (yes, billion with a B) barrels of crude oil that are in storage around the globe.  Even if worldwide production stopped completely it would take us an entire month to use up all the crude that’s in storage.  It just doesn’t make sense for Saudi Arabia to cut production, so OPEC won’t be able to come to an agreement.  I suppose that a very short-term cut in production, something less than three months, might be beneficial as it would cut into the global storage numbers some.  Longer than that and American companies will be bringing new production online.  It doesn’t make sense for OPEC to cut production.

It’s August 15, 2016 and oil prices finally dropped again.  The recent increase in oil prices was ridiculous and founded in speculation that OPEC was going to freeze oil production.  Such speculation was completely driven by speculators, people who make money on rumors.  Since it was OPEC saying they might agree to a freeze, I wouldn’t be surprised if some people in charge at OPEC made a lot of money playing the futures market.

A study by Deloitte is saying that oil and gas companies have underspent over the last couple of years.  They haven’t put enough money into developing new resources.  That means that sometime in the next few years we’re going to see a shortage of new oil and gas reserves coming online, which will lead to a shortage of oil and gas on the market, which will lead to high prices for oil and gas.  When will the producers learn to manage themselves properly?

Natural gas prices are still near $2.75/MCF.  Injection into storage was a little higher than expected for last week, but below last year’s number for the week and below the five year average for the week.

$50/bbl oil seems to be the point where at least some producers want to start bringing on new drilling rigs.  Whether that’s going to last is up to the Saudis and Iran.  The Saudis can increase oil production by 1 million barrels per day practically overnight, and by another 1 million barrels per day in about six months.  That would drive prices down.  Iran is halfway to the 4 million barrel mark, which is the amount it was producing before sanctions and which is its goal for future production.  Between Saudi Arabia, Iran, and American companies, it’s unlikely that we’ll see prices much over $50/bbl for a little while.  Higher prices are coming, though.

Because of Brexit the dollar is up, the markets are in turmoil, and oil prices are dropping.  Natural gas prices, however, are still around $2.70/MCF.  Decreased production is the reason.  It’s all about the fundamental supply/demand balance.

David Einhorn sees gas prices going up, essentially because of a lack of supply.  This Seeking Alpha article sums up his five points, but “lack of supply” sums up the article.

Stone Energy has re-opened it’s Mary field here in West Virginia.  Gas prices have risen enough, and Stone obviously expects them to stay high.

Here in West Virginia we’re more interested in what happens with natural gas prices, and the market forces are different enough for natural gas from oil that what affects oil won’t directly affect natural gas.  However, when oil prices drop a lot natural gas prices often drop a lot too.  Consequently we keep tabs on oil.  Also, people in general want to know what’s going on with oil prices because that affects the price at the gas pump.  So, here’s a good summary of what’s affecting oil prices right now.  It’s short enough that it doesn’t warrant our own summary.  The last paragraph is the most interesting to me.

Oil prices have moved up, and the oil industry thinks things have stabilized.  If I were an oil driller, I’d be doing everything I could to keep the good people in my business on board.  Not that prices are going through the roof any time soon; they’ll probably stay below $60 until the second half of next year.  I’d be figuring out how to produce oil (same goes for natural gas) in the current market at a profit, and the only way to do that is with good people.

July 1, 2016, and gas prices hit $3.00/MCF.

Here we are on July 21, 2016, and gas has dropped to $2.69/MCF and has spent some time below that price.  I suppose that investors took a look at gas production, gas storage rates, and the amount of gas in storage, and realized that (spoiler!) we still have a ton of gas!  Paying $3.00/MCF just didn’t make sense.  Maybe we’ll hit that this winter when we start using more gas than we produce.  Of course, this weekend is supposed to be a scorcher across a good chunk of the country, so maybe prices will bump up when next week’s storage report comes in lower than expected.  Who knows?  It’s sure fun to speculate, isn’t it?

I can say one thing for sure, leasing seems to be picking up.  We picked up two new clients in the last week or so, and have a couple more who we expect to come on board in the next few days.  We have at least one call a day from someone who needs to know what an oil and gas lease is all about.  The drilling companies seem to think that higher gas prices are here to stay.

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.