Hydrocarbons

Oil and gas production in the Shale Era is a refined, controlled process — and a far cry from the early days of wildcatting a century ago. Modern drilling typically involves multiple wells on a single well pad, with each well going through a four-stage process to produce hydrocarbons that are then separated into distinct components. In today’s RBN blog, we look at how drilling-and-completion techniques have evolved over the years, from old-school vertical wells to the highly complex strategies targeting shale areas today, and how they set the stage for hydrocarbon production and recovery.

One way or the other, all of 2018’s Top 10 blogs had something to do with infrastructure. There’s not enough. Or it’s taking too long to come online. Or there is too much being built too soon. Even the financial underpinning of U.S. energy infrastructure development — the MLP model — ran into tough sledding in 2018. Then, toward the end of the year, all of the best-laid infrastructure planning got whacked by the crude-market wild card: prices crashing below $50/bbl. We scrupulously monitor the website “hit rate” of the RBN blogs that go out to about 26,000 people each day and, at the end of each year, we look back to see what generated the most interest from you, our readers. That hit rate reveals a lot about major market trends. So, once again, we look into the rearview mirror to check out the top blogs of the year based on the number of rbnenergy.com website hits.

Record high production with prices still rangebound! As of year-end 2017, Lower-48 natural gas production was at an all-time high — 77 Bcf/d and rising. NGL production from gas processing was at 3.7 MMb/d, the highest since EIA started recording the numbers. And U.S. crude oil output stood at 9.8 MMb/d, within spitting distance of the 10 MMb/d record set back in October/November 1970. All this with the price of WTI crude oil no more than 9% higher than it was this time last year, and natural gas prices 20% below year-end 2016. Yup, the dogs are out. Productivity is the culprit: longer laterals, super-intense completions, manufacturing-process pad drilling — the list goes on. Clearly the U.S. can’t absorb all this production growth, so the export market must be the answer. Or is it? Are we really that confident that world markets will make room for still more U.S. hydrocarbons? If not, what does it mean for prices? And ultimately, how will these prices impact U.S. producers? These are big questions, and with this much turmoil in the market it is impossible to know what will happen. Impossible? Nah. No mere market turmoil will dissuade RBN from sticking our collective necks out to peer into our crystal ball one more time to see what 2018 holds.

The new normal. Or at least the market’s perception of a new normal. That’s how we will remember 2017.  Producers have come to terms with the possibility of crude prices in the $50-60/bbl range for a long time to come, and natural gas stuck around $3/MMBtu. But even in the face of this sober market outlook, crude oil production is near its all-time record. And Lower-48 natural gas blew past its historic maximum a few weeks back. Increasingly the biggest challenges facing the market are related to infrastructure –– where will all these hydrocarbons find a home. As we have over the past six years, RBN tracked these trends in 2017 as they played out, and now at the end of the year, it’s time to look back to see what topics generated the most interest from you, our readers. We monitor the hit rate for each of our blogs that go out to about 23,000 of our members each day, and the number of hits tells you a lot about what is going on in energy markets. So once again, we look into the rearview mirror to check out the top blogs of 2017, based on the number of rbnenergy.com website hits.

A long-standing tradition at RBN is our annual Top 10 RBN Energy Prognostications blog, where we lay out the most important developments we see for the year ahead.  Unlike so many forecasters, we also look back to see how we did with our forecasts the previous year.  That’s right!  We actually check our work.  Usually we can get that all into a single blog.  But a lot will be coming at us in 2017, so this time around we are splitting our Prognostications into two pieces.  Tomorrow’s blog will look into the RBN crystal ball one more time to see what 2017 has in store for energy markets.  But today we look back.  Back to what we posted on January 3, 2016.  Recall back in those days that crude production had not started to decline materially, West Texas Intermediate (WTI; the U.S. light-crude benchmark) was at $37/bbl, natural gas was $2.33/MMbtu in the middle of winter, Congress had just OK’ed crude exports, and weak exploration and production companies (E&Ps) were dropping like flies. Now let’s look at RBN’s Prognostications for 2016.

The oil price collapse has opened a wide rift between high quality “good” assets, breakeven “bad” assets, and ruinous “ugly” assets.  The consequences will impact energy markets for decades to come.  In our recently published Drill Down Report, we demonstrate the differences between good, bad and ugly wells by examining the diversity of production economics across the Eagle Ford basin and why producers have been zeroing in on the counties——and areas within those counties—where initial production (IP) rates are highest, and preferably where large volumes of associated natural gas and natural gas liquids can be found as well. Today we consider Eagle Ford counties in more depth—their IPs, their internal rates of return (IRRs), and the number of new-well permit applications in each county in the first quarter of 2016.

West Texas Intermediate (WTI) CME NYMEX crude futures settled up 92 cents/Bbl yesterday (January 28, 2016) at $33.22/Bbl and NYMEX Henry Hub natural gas futures settled up slightly at $2.182/MMBtu. The crude-to-gas ratio - meaning the crude price in $/Bbl divided by the gas price in $/MMBtu - was 15.22 X. For most of this year so far the ratio has been less than 15X On January 20, 2016 it dipped to 12.5 X – its lowest point since March 2009. Over the 5 years between 2010 and 2014 the ratio averaged 27X - reaching a high of 54X in April 2012. That lofty five year run for the crude-to-gas ratio was arguably responsible for much of the crude and natural gas liquids production boom since 2011 and a “Golden Age” of natural gas processing. Today we begin a two-part series discussing the ratio and the market implications if it stays low.