Hydrocarbons

2015 was a transformational year for the U.S. shale revolution.  Act I of the Shale Revolution is now behind us.  We’ll look back at the first decade -- 2005-2015 as the halcyon days – when there was always another market just around the corner.  Shale started with dry gas in Texas, but those prices were crushed by the economics of wet gas and NGLs.  In just a few years, that market too was annihilated, but economically attractive Appalachia dry gas and the big kahuna, crude oil took center stage.   Now after a year of being beaten senseless by low prices, it is clear that those markets too have succumbed to the scourge of shale oversupply.  That’s the end of Act I.  There is nowhere else for producers to turn.  The market dynamics facing Act II of the shale revolution are unprecedented.  There is simply no way to predict what is going to happen next.  Right?  That’s silly.  Of course we can!  It is the perfect time to roll out RBN’s crystal ball one more time for 2016 - Year of the Monkey.  Yup, there is more monkey business coming to energy markets.

What do you do when prices are in the cellar, hundreds of rigs are idle, production growth has evaporated and the whole industry seems to be wondering how the numbers are going to work.  Well of course, it’s time to head back to school to understand the new realities of energy markets.  That is what School of Energy Spring 2016 is all about.  This is nothing like other natural gas, crude oil or NGL conferences! The course work is hands-on. In each module we’ll drill down on an important aspect of the market, explain how it works, download spreadsheet models and learn how to use them. This time we’ve added more models than ever, crunching the numbers that explain everything from production economics to petrochemical margins in the context of today’s prices. You walk out the door with the how-to Powerpoints and the Excel models on your hard drive.  Warning - today’s blog is a blatant commercial for our upcoming Houston conference.

Mexico has emerged as an important and growing market for U.S. natural gas producers, and for U.S. midstream companies scrambling to develop gas pipelines to serve Mexico’s gas consumers. Meanwhile, U.S. gasoline, diesel and liquefied petroleum gas (LPG) exports to Mexico are also up. Petróleos Mexicanos (Pemex)—the state-owned hydrocarbon giant, now in the midst of a major reboot—is on the hunt for private-sector partners to help revive Mexico’s sagging oil and gas production, and U.S. oil producers and Pemex are planning their first swaps of crude. Today we highlight RBN Energy’s latest Drill Down report examining the changing yins and yangs of cross-border energy relations.

In connection with third-quarter earnings announcements, North American exploration and production companies (E&Ps) continued to announce large reductions in 2015 and 2016 capital budgets. But the most dramatic news is that RBN’s analysis of a study group of 31 E&Ps fourth quarter forecasts indicates that oil and gas production is now expected to level off in the fourth quarter of 2015 and into 2016. Today we update our analysis of E&P capital spending and oil and gas production guidance.

Although many industry observers predicted draconian cuts to the credit lines of North American E&Ps during the fall borrowing base redeterminations by their lenders, the average reduction for 17 companies disclosing the results to date is just 4%. Today we describe how these results may indicate that significantly lower industry costs and less dramatic reductions in long-term commodity price forecasts could be partially offsetting the negative factors used to determine borrowing capacity under secured and unsecured credit lines.

The E&Ps have cut Capex to the bone, but as a group they expect oil and gas production in 2015 to increase versus last year.  That’s true from an overall perspective, and it is an important indicator of upcoming production trends.  But the real revelations come when you dig into the details.  In the oily sector, small and mid-size companies are making deeper cuts but are faring much better than the big boys.  On the gassy side, E&Ps in Appalachia are knocking it out of the park, while more diversified gassy players are having a much harder time of it.   Today we begin a blog series to drill deeper into the company numbers to see why and how these differences happen.

Producer rates of return are far below where they were a few months back, and the Baker Hughes crude rig count is down 553 since November. A third of pre-crash crude rigs are now idled. That means that crude oil production will be falling soon, right?  Not necessarily.  There are a number of factors working to keep production up, not the least of which is the rapidly declining cost for drilling and completion services.  Today we examine the impact of these factors, review RBN’s crude oil production scenarios and consider what it all means for the long-term relationships between prices, returns and production volumes.