on the past week's news from the oil & gas patch, with a focus on fracking...
while we've seen plenty of evidence of cutbacks in the tar sands and by oil drillers in Texas and in the Bakken over the past several weeks, this week brought the first confirmation of cutbacks in the gas areas of the Marcellus and Utica shales, in the face of natural gas prices that have generally stayed below $3 per mmBTU so far this year...Antero Resources of Denver advised inestors that it was slashing its budget by 41% to $1.8 billion, and planned to defer completion of 50 wells they've already drilled in the Marcellus until 2016...they also plan to idle another 7 of the 21 drilling rigs that were still operating at year end, leaving 9 operating in the Marcellus in West Virginia and 5 in the Utica in Ohio, while currently planning just 130 Marcellus and Utica wells in 2015, down from 179 they drilled in the area last year...their announcement followed on the heels of an announcement by Stone Energy of La. that they would nearly halve their operating budget in 2015, from $875 million in 2014 to $450 million this year, with 13% of that to be allocated for abandonment expenditures, as they intended to wrap up their Appalachian work in the 1st quarter and concentrate on thei Gulf Coast assets...earlier, Gastar Exploration said they would slow down their Marcellus operations and concentrate on those areas with access to the Atlantic Coast Pipeline, while ConocoPhillips cut its drilling budget by 20 percent for 2015, intending to defer spending in North American shale plays, and Colorado based PDC Energy said they're eliminating their funding for Ohio drilling altogether this year...
the US rig count fell again this past week, but not by the record numbers we saw last week....Baker Hughes reported that there were 1633 rigs operating on January 23rd, the lowest rig count since August 2010, which was down 43 from the 1,676 rigs that were operating on January 16th...the count of offshore rigs was unchanged at 54, while land based rigs fell by 43 to 1,579...the number of rigs drilling for oil fell by 49 to 1317, while gas drilling rigs were up by 6 to 316...that leaves the US rig count down 144 from the 1777 running a year ago, with oil rigs down 99, gas rigs down 40, and miscellaneous rigs down 5...the major idling of rigs this week was again in Texas, where 13 rigs were shut down, leaving 753 still operating there; meanwhile, North Dakota drillers idled 9 units to drop their total to 147, while Oklahoma rigs dropped 8 to 193...closer to home, Ohio drillers shut down 4 rigs, leaving 44 running, while two were added in Pennsylvania, bringing their total to 193...in addition, the Canadian rig count was down 8 rigs from last week to 432, with oil rigs down 11 to 223, and gas rigs up 3 to 209, while they are now running 158 less drilling rigs than a year ago, with oil rigs down 171, and gas rigs up 13...since we have not recently looked at a picture of this pullback, we'll include the Baker Hughes graphic for land based rigs below; you'll notice they had to stretch their graph out a bit to the south to accommodate the downturn...the graph below shows the weekly rig count over the past two years, with the red line graph tracking the rig count over the past year, while the blue bars represent the weekly count for last year...you can see that land rigs, the great majority of which are now drilled horizontally and fracked, are down by nearly 300 since the OPEC production announcement on Thanksgiving, and expectations are that they'll drop by at least another 500 before the dust settles...
US land based rig count 1/23/15:
![January 23 2015 land rig count January 23 2015 land rig count](https://ci5.googleusercontent.com/proxy/8sB2SJKArpi84NEKHMxrv8uA5osxzpLOhPglEgCnXkMknNzfC_Y6A37pFnGtf-UyYcZWcaBivPz67fPZiNLdOkV-nOPS-2ST5vbWj_4VjAYhPfQXvdZ50U6bWyP9BNL5JWiSuAGhoprLSKfMfmKhI4ZB2A=s0-d-e1-ft#https://rjsigmund.files.wordpress.com/2015/01/january232015landrigcount_thumb.jpg?w=996&h=726)
US crude oil prices were again broadly lower this week, with the near term contract opening at $48.85 on Monday and falling to close at $47.83 a barrel; prices then fell another dollar on Tuesday but moved back up to $47.30 on Wednesday...they then fell again on Thursday and Friday after the Energy Information Administration announced the largest increase in U.S. crude stocks in at least 14 years, and ended the week at $45.59 a barrel...natural gas contract prices at the Louisiana Henry Hub, however, stayed in a narrow range, bouncing between $2.83 per mmBTU and $2.99 per mmBTU to end the week at $2.986..
this week also saw the discovery of two major spills on northern tributaries of the Missouri River, where cleanup efforts are being hampered by near zero weather and mostly frozen streams...the first spill that hit the newswires resulted from a pipeline rupture under the scenic Yellowstone river in Montana, the same river that saw an independence weekend spill in 2011...and just like that spill, this one resulted from movement of an old 12-inch diameter steel pipeline that was buried under the river in the 1950s and was still being used to transport oil from Canada to the US...roughly 50,000 gallons of oil leaked below the ice before the flow was cut off...crews had to cut through the ice to begin the cleanup, but even so the oil reached the water intakes of Glendive, Montana, where 6000 residents were told not to drink or cook with their tap water, as a cancer causing component of oil was detected in their water supply...with the oil moving under the ice toward North Dakota, officials from Williston, the first town in that state that it would reach, were planning to shut their water intakes when they learned of a much larger spill of roughly 3 million gallons of fracking wastewater that had leaked over a period of more than 17 days from a 4 inch pipeline 15 miles north of town, contaminating two nearby creeks with a mixture of brine, oil, ammonium and other fracking contaminants...unlike the 60 year old pipeline that had ruptured under the Yellowstone river,the pipeline that failed here was just 6 months old, indicating if anything that at least the older pipelines were built to last...although the spill had been reported on January 6th, this largest spill in state history was largely ignored as normal occurrence in a state that has seen over 1000 spills a year since 2011…with the brine said to be 10 times saltier than sea water and containing radioactive elements, damage to plants and wildlife from this spill still could not yet be assessed, as most of the area is frozen over....by Friday, the brine from the larger of the 2 contaminated creeks reached the Missouri River, where state officials said they did not expect harm to wildlife or drinking water supplies because the poisons were being diluted by larger volumes of water...
on matters of that larger pipeline known as the Keystone XL, which would cross the Yellowstone River approximately 20 miles upstream from this week's spill site, we learned that TransCanada filed court documents on Tuesday in nine Nebraska counties to start eminent domain proceedings with intent to condemn the 90 properties in that state whose owners have not yet signed the easements it still needs there...in response, the Nebraska property owners have filed new lawsuits in an attempt to overturn the state law that allowed a legal route for the pipeline through the state..surprisingly, TransCanada claims it already has all the easements it needs in Montana and South Dakota to build the pipeline through those states, where landowners were told they had no other option...the fact that they are proceeding to get easements even though it's relatively unlikely the pipeline would even be built suggests that they are engaged in a land grab, using the proposed Keystone route and lax US laws to gain property rights across a large swath of the central US...however, even before TransCanada moved on Nebraska, the first Canadian tar sands crude oil was being delivered to Houston area refineries through the Seaway Pipeline system, via the Flanagan South pipeline through Illinois to the oil depot in Cushing OK, and originating from Enbridge's Alberta Clipper to Wisconsin, a route which we have discussed here before...although roughly 250,000 barrels per day had been arriving in Freeport up until last Friday, the newly completed twin Seaway loop is expected to deliver 450,000 bpd henceforth, and an additional loop to run parallel to the existing pipeline is expected to more than double the Seaway’s capacity to 850,000 barrels per day when completed, slightly more than the expected 830,000 bpd capacity of the Keystone XL...
while all that was going on in the central US, the Senate continued debate on their bill mandating approval of the Keystone XL, which wrapped up with a cloture vote in a midnight session on Thursday night...as we've pointed out previously, this bill that already passed the House by a large majority will easily pass the Senate when it's voted on next week, and the only question that remains now is whether there will be enough votes to override the expected Obama veto...of more pressing interest to those of us in Ohio, though, was the bill that passed the House on Wednesday, which would expedite the automatic approval of all natural gas pipelines that FERC had not approved within a year of their proposal.... the bill passed by a 253 to 169 margin, and it seems a similar bill could easily pass the Republican controlled Senate...offhand, we know of at least 4 interstate pipelines involving Ohio that might be expedited by such a ruling; the Rover pipeline project, a 42 inch natural gas pipeline that would originate in eastern Ohio & cross through north central Ohio on the way to Michigan; Atlantic Coast Pipeline, another 42 inch project covering 550 miles, crossing the Blue Ridge Mountains to deliver gas to Virginia from Pennsylvania, Ohio and West Virginia, the Mariner West and Allegheny Access project, which is the Pennsylvania to Michigan Sunoco Logistics pipeline through Mahoning, Portage & Summit counties, which this group has discussed, and theNexus Gas Transmission pipeline, which will gather gas from Pennsylvania & West Virginia and transport it west through Ohio to Michigan, Indiana, and Ontario....it goes without saying that if all this gas infrastructure is completed quickly, there's a good likelihood the area will be seeing fracking for a long time to come..