Fed: Oklahoma, Texas Boast Lowest Breakeven, Opex

The Permian Basin and Oklahoma’s STACK/SCOOP are at the center of the oil and gas recovery with the lowest breakevens and opex, according to a Dallas Federal Reserve report.

The Fed polled around 60 E&P companies in mid-March to ask two questions: What WTI price do you need to profitably drill a new well and where does WTI need to be to cover opex for existing wells? The companies’ responses largely indicated that the current oil price is slightly above breakeven in the prolific plays while prices at the depths of the downturn still weren’t low enough to shut in wells in the top shale regions.

The Midland Basin had the best breakeven for new wells at $46/bbl. This was followed closely by the STACK/SCOOP at $47/bbl, Eagle Ford at $48/bbl, Delaware at $48/bbl and Central Basin Platform at $50/bbl. The average Permian breakeven price was down to $48/bbl this year from $51/bbl last year, according to the survey.

The Midland also led the pack as the cheapest play in terms of opex, with operators saying $24/bbl was needed to keep their wells flowing. The STACK/SCOOP again was second at $27/bbl, followed by the Eagle Ford at $29/bbl and the Delaware and CBP at $33/bbl. Opex for 1Q17 was similar to 1Q16.

Source: PLS PetroScout

Oklahoma Federal Court Delivers Blow to Sierra Club

AAPL - In a win for the industry, on April 4, in Sierra Club v. Chesapeake Operating LLC (Case No. 5:16- cv-00134), the U.S. District Court for the Western District of Oklahoma dismissed an environmentalist lawsuit against multiple oil and gas companies blaming hydraulic fracturing for increased earthquake risk.

The lawsuit was premised on the notion that the Oklahoma Corporation Commission (OCC) - which has primacy over the U.S. Environmental Protection Agency's Underground Injection Control program - is doing an inadequate job implementing induced seismicity mitigation measures. 

The Court disagreed, noting that "the OCC has been taking the action requested by plaintiff." Further, the Court noted that the OCC "has responded energetically to that challenge" and that the OCC "has brought to bear a level of technical expertise that this court could not hope to match."

Read more.

Hefner receives national award from the AAPL

Hefner Energy's Founder & CEO, Robert Hefner V, has been named 2016 "Best Member Communication" from the American Association of Professional Landmen (AAPL) for his work and social media interaction surrounding the lightning rod issue of (and titled) Induced Seismicity

Earlier versions of his work had been published by the Oklahoma Independent Petroleum Association (OIPA) and Oklahoma City Association of Professional Landmen (OCAPL).

Marathon Oil Pays $888 Million to Acquire Payrock Energy

Marathon Oil announced they will pay $888MM to acquire Payrock Energy's position in the STACK, covering roughly 61,000 net acres and current net production of 9,000 barrels of oil equivalent per day (Boe/d).

Marathon Oil's Investor Relations Webcast Highlights:

  • The deal implies $11,800 per net undeveloped acre after backing out PDP production value.
  • Initial production rates on a few of their 1-mile lateral wells exceeded 1,300 Boe/d.
  • 330 MMBOE 2P Resource with 490 gross operated locations ($2.20 / Boe implied value)
  • 6 well Meramec density per section assumed in their valuation
  • 940 MBoe EUR per well type curve
  • 790 Boe/d average IP30

Marathon's shares surged since the announcement was made.

Payrock Energy is a private oil and gas portfolio company of EnCap Investments and was advised by Jefferies, Inc. on the transaction.

HighMark Energy Acquires Atalaya Resources 4,095-acre STACK position

HighMark Energy of Dallas, TX announced June 2, 2016 their acquisition of nearly 4,100 acres from Atalaya Resources in the STACK.

The position covers mostly Blaine and Canadian Counties, Oklahoma.

About HighMark Energy

With the equity backing of Natural Gas Partners, HighMark Energy was formed in the fall of 2013 to acquire, develop and produce upstream oil and natural gas assets.

HighMark's principal strategy is the acquisition of mature, high quality, producing properties. Management has the skill set and experience to undertake a broad range of negotiated and competitive transactions including mergers, direct acquisitions, and equity and debt participations.

http://www.highmark-energy.com/

 

 

Newfield Acquires Chesapeake Energy's STACK Position for $470MM

Newfield is acquiring 42,000 net acres with net production of 3,800 boe/d (55% liquids) in the STACK from Chesapeake Energy for $470MM. The deal implies $10,000 per net undeveloped acre after backing out $50MM for PDP reserves.

Meanwhile, Newfield maintains they have yet to breach $3,000 per undeveloped acre cumulative in the STACK. “This bolt-on acquisition is ideal for Newfield, combining strategic fit in a growing resource play where we have a clear competitive advantage,” said Newfield chairman Lee Boothby. “As the discoverer and founder of STACK, we have drilled more than a quarter of the play’s total wells and are the proven leader.” Newfield expects to fund the acquisition with cash on hand, with closing taking place in Q2.

Chesapeake Energy will retain 52,000 net acres in the STACK.

newfield-chesapeake-stack-acquisition

White Star Petroleum buys Devon's Miss Lime Assets

Working toward their targeted $2-3 billion non-core divestment goal to offset late 2015 strategic acquisitions, Devon signed a deal to sell its Mississippi Lime assets in northern Oklahoma for $200 million to White Star Petroleum, formerly known as American Energy Woodford. A member of the American Energy Partners family founded by the late Aubrey McClendon in 2013.

White Star announced the name change concurrent with the acquisition as part of a transition process to become fully independent of the AELP platform during Q2. It follows similar moves by AELP’s Appalachian and Permian units. The acquisition consists of a largely contiguous 210,000 net acres immediately offsetting White Star’s existing leasehold in central-northern Oklahoma. The acreage is primarily in Payne, Lincoln, Logan and Garfield counties and mostly HBP.

White Star is also getting 555 operated and non-op horizontal wells with Q1 net production of 12,800 boe/d (30% oil, 39% NGLs) from the Mississippi Lime and Woodford shale and YE15 proved reserves of 11 MMboe. Besides the upstream assets, Devon owns oil, gas and water gathering infrastructure in the area.

This divestiture follows with Devon's expected $2-3 billion in asset sales as outlined in their May 2016 investor relations presentation.

devon-energy-divestment-assets.jpg

Reflection on Energy Policy

After watching the most recent CNN Presidential Debate, it has become clear our "leaders" are clueless about energy policy. This is an attempt to enable us to discuss our energy future more adequately.

Anecdotally, if you desire to read about fracking or disposal injection wells, you can read our nationally published thoughts on Induced Seismicity.

Why are we listening to our "leaders"?

On October 12, 2012, Mitt Romney came prepared - mostly due to Continental Resources' Harold Hamm - to debate energy policy with President Barack Obama who, after four years in office, was terribly misinformed in the Town Hall Presidential Debate. As I wrote in October 2012:

"I'd like you all to realize that this President - after serving for 4 years - still knows nothing more about energy than he did when he took office. I also want to preface this note with the fact that it's completely non-partisan.

Per the Town Hall Presidential Debate, here are some comments he made:
Videos: http://www.youtube.com/watch?v=2HJpOf0_d-s and http://www.youtube.com/watch?v=IVBfcQsO3jE

"Here is what I have done since I have been President: we have increased oil production to the highest levels in 16 years. Natural Gas production is the highest it’s been in decades. We have seen increases in coal production…”

While oil and gas production is spiking under Obama's tenure, it has nothing to do with his administration or policies:

Average Federal onshore acres leased per year is down 86% since Reagan and a down 49% since Clinton. In fact, federal leasing is at a 30 year low!

Out of the entire Federal mineral estate, only 6% is currently leased onshore

Out of the entire Federal mineral estate, only 20% is currently leased offshore

"We continue to open up new areas for drilling." "We have opened up public lands. We are drilling more on public lands than in the previous administration."

Obama, again, is 100% incorrect. Both Bill Clinton and George W. Bush had nearly identical federal leasing rates. Under Obama, that number has plummeted to it's lowest level in 30 years!

"We make it a priority for us to go after natural gas."

100% false. When you look at legislation and rhetoric, Obama didn't even mention natural gas until the past 6 months. He has completely left it out while spending billions of federal dollars on failed solar companies [like Solyndra] that are presumably his friends pockets.

“You have a whole bunch of oil companies who have leases on public lands that they weren’t using. So, what we said was, “You can’t sit on this for 10, 20, 30 years, decide when you want to drill, when you want to produce. These are public lands, you use it or you lose it. And so what we did is we took away those leases.”

All I can say is, wow. His complete ignorance of the oil and natural gas industries is completely on show with this comment.

Every Federal Onshore lease is for a term of 10 years - never 20, never 30.
When you lease something, it's yours for the given period of time that you've leased it for. For example, if you lease a home or a car for 12 months, the Lessor is not able to take the home or vehicle back after 6 months. This logic makes no sense whatsoever. So, yes, they can sit on it and decide when they want to drill as long as it's within the primary term of the lease!

I will add to this post later when I have more time."

Unfortunately, I never added to that post - until now. Reflecting on what I wrote four years ago, it's clear nothing has changed. Obama spent his entire presidency crowing about an "all-of-the-above" energy strategy without really ever being serious about it. As he stated in 2012, he seemed to champion American-made energy.

We can’t have an energy strategy for the last century that traps us in the past. We need an energy strategy for the future – an all-of-the-above strategy for the 21st century that develops every source of American-made energy.”  President Barack Obama, March 15, 2012

He even touted natural gas in his 2014 State of the Union:

"The all-of-the-above energy strategy I announced a few years ago is working, and today, America is closer to energy independence than we’ve been in decades... one of the reasons why is natural gas, if extracted safely, it’s the bridge fuel that can power our economy with less of the carbon pollution that causes climate change,"

It wasn't until his final State of the Union that he admitted to his true energy agenda however - killing fossil fuels.

Now we’ve got to accelerate the transition away from old, dirtier energy sources. Rather than subsidize the past, we should invest in the future -- especially in communities that rely on fossil fuels. We do them no favor when we don't show them where the trends are going. That’s why I’m going to push to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet.

Ironically, right before he made this statement, he actually championed fossil fuels for cutting imports and carbon pollution more than any other country,

...meanwhile, we’ve cut our imports of foreign oil by nearly 60 percent, and cut carbon pollution more than any other country on Earth.

So, President Obama did everything in his power to block oil and natural gas development on Federal lands, then turns around and claims credit for reducing our reliance upon OPEC, and reducing carbon pollution more than any other country on Earth?! It's unconscionable.

us-production-federal-state-private.jpg

The private sector of the oil and natural gas industry, specifically, is responsible for these great achievements. As this article in The Hill covered well, "Obama's love affair with gas is over."

What about Bernie and Hillary?

Although Obama's policies are misinformed and misguided, the message emulating from the Clinton and Sanders campaigns is baffling. Their energy policy has the potential to demolish the very middle class they are claiming to protect. Bernie has routinely called for a nationwide ban on fracking, putting his ignorance on full display (detailed in our previous paper Induced Seismicity). Meanwhile, Hillary has stated,

By the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place."

Their policies will drastically increase gas prices at the pump, reliance upon OPEC imports, United States carbon dioxide emissions, and ultimately electricity costs. Germany's Energiewinde programme gives us a glimpse into the reality they wish to create for our country - soaring electric costs, which will reverse our industrial manufacturing renaissance and all but eliminate disposable income for the middle class. These policies will hit the middle class like a ton of bricks as generation companies will be forced to pass along the massively inefficient costs to their consumers.

What's further is their positions are not representative of the Democratic or Republican Parties as this article op-ed in the New York Times - Can Liberals Frack? - does a great job of concisely conveying.

global-electricity-prices-by-country-per-kilowatt-hour.jpg

In the most recent CNN Democratic debate held in New York, which already banned fracking, energy was a focal issue on which Clinton and Sanders sparred.

At one point, Bernie Sanders beamed, "

We ain't gonna excavate for fossil fuel on public land."

Excavated? Really? Does Sanders actually believe oil and natural gas are excavated like coal? I have to give him the benefit of the doubt; he can't be that dumb. It might, however, explain something inherently wrong with our energy discussion. Most will lump coal, oil, and natural gas into a single term - "fossil fuel".

This is strictly political jargon as idiotic as the English lumping Agape, Eros, Philos and Stergos into a single word called "love" - why the English couldn't add three more words to their already twenty thousand plus word dictionary I'll never know. As vastly different as Agape is from Eros, coal is also to natural gas. Did you know, for example, pound for pound, natural gas provides 4x more energy while emitting less than 50% less carbon dioxide when burned? Did you know one gram of U-235 isotope equals about 4 TONS of coal? Did you know Britain switched to an oil-fired naval fleet during the first World War which was the reason the Allies won the German surrender in 1918? They did this even though they had to rely 100% upon foreign nations for their fuel, a very risky move for any Nation! Understanding these fuels, and their benefits is part of understanding our energy future.

First and foremost, energy density is a MAJOR reason we use "fossil fuels" today. They provide more work in less space.

Illustration from The Bottomless Well by Peter Huber

Illustration from The Bottomless Well by Peter Huber

Fossil fuels are the reason we have constant electrical generation which enables us to enjoy the highest quality of life in the world, and innovate the greatest technological advancements known to man.

As my grandfather illustrated in his book The Grand Energy Transition, our energy history begins with solids, transitions to liquids and ultimately gasses.

The Grand Energy Transition, 2009

The proponents of wind, solar and biomass are pushing against a powerful historical trend however - no nation has ever adopted a less energy-dense fuel source, no matter how cheap it becomes. Left to its own devices, the market pays steep premiums for fuels that pack more energy into less weight and space.

energy-density-eia

Refusing to listen to these basic warnings would be of consequence to the middle class and America. About three decades ago, my grandfather was called to testify before Congress as the only independent producer on a panel. As majors like ExxonMobil scoffed at him, he stood tall and delivered the testimony of a visionary - the United States is awash in natural gas. Even the Secretary of Energy at the time, James Schlesinger, dismissed him.

It was a mistake which cost our country dearly as we transitioned away from natural gas out of fear we would run out! For the record, no nation in the history of the world has adopted a new energy source because they ran out - it just doesn't happen. We always find a superior energy source prior to running out of our current source.

In this case we transitioned away from natural gas, which produces 50% less carbon dioxide when burned, is four times more energy-dense than coal, and easier to transport, toward more coal and oil use. Today, Dr. James Schlesinger sees the errors of his ways and has admitted, "Years ago, he [Robert Hefner III] was scoffed at for his belief in ample supplies of natural gas and now he turns out to be right and those who disbelieved him turned out to be wrong." Can you imagine if we had began our switch to natural gas back in the 1970s as we should have?

“Years ago, he [Robert A. Hefner III] was scoffed at for his belief in the ample supplies of natural gas and now he turns out to be right and those who disbelieved him turned out to be wrong.”
— Dr. James Schlesinger, Economist; former U.S. Secretary of Energy; former U.S. Secretary of Defense; former CIA director; Homeland Security Advisory Council; consultant, U.S. Department of Defense

Even IF you believe solar and wind are up to the task, how could you possibly believe these technologies have the ability to satisfy energy demand, today or in the future? The EIA projects global energy demand will increase 56% by 2040 - or 820 quadrillion BTU. For reference, all renewable energy sources produced in 2014 in the United States only accounted for 8 quadrillion BTU... you tell me how that's going to work out for us? This doesn't even factor in all the other issues with renewable like wind or solar, including: infrastructure issues, storage issues, transmittance issues, intermittentcy issues, and more. As the EIA projects, all fuels will be needed as we move forward.

world-energy-demand

So, until such time we are able harness a superior energy source to natural gas or nuclear, we should not be so quick to vilify energy sources which are the backbone of American GDP and the middle class.

Titanium Exploration Partners Acquires Vanguard's SCOOP/STACK Assets

Vanguard Natural Resources has agreed to sell it's SCOOP and STACK assets to Titanium Exploration Partners of Dallas, TX for $280MM with an expected close the middle of May 2016.

About Vanguard Natural Resources, LLC

Vanguard Natural Resources, LLC is a publicly traded limited liability company focused on the acquisition, production and development of oil and natural gas properties. Vanguard’s assets consist primarily of producing and non-producing oil and natural gas reserves located in the Green River Basin in Wyoming, the Permian Basin in West Texas and New Mexico, the Gulf Coast Basin in Texas, Louisiana, Mississippi and Alabama, the Anadarko Basin in Oklahoma and North Texas, the Piceance Basin in Colorado, the Big Horn Basin in Wyoming and Montana, the Arkoma Basin in Arkansas and Oklahoma, the Williston Basin in North Dakota and Montana, the Wind River Basin in Wyoming, and the Powder River Basin in Wyoming. More information on Vanguard can be found at www.vnrllc.com.

About Titanium Exploration Partners, LLC

Titanium Exploration Partners, LLC, is a Dallas, Texas-based oil and gas investment firm managed by Charles B. “Chip” Simmons, CEO and Peter M. Halloran, Executive Chairman and Chief Investment Officer. Titanium’s current assets consist primarily of producing and non-producing oil and natural gas reserves located in the Eagle Ford Shale play in South Texas and in the SCOOP/STACK area in Oklahoma.  Titanium considers investments in operated and non-operated assets in all US shale plays.  See www.titaniumep.com.