In a report
done for Bloomberg Markets by Bailey Lipschultz on the 17th of
February, 2017 (last week), the online media submitted that Shale drilling is
on a row as the Organization of
Petroleum Exporting Countries (OPEC) cuts prices to keep crude oil above
$50/barrel. In this week’s edition of Drillbytes,
the details of the production cut and attendant stability hovering around
$55/barrel is x-rayed with a note for Nigeria to use the emerging realities to
buckle up in its quest to take advantage of the price relief even if marginal.
Shale
wildcatters pushed ahead on the biggest surge in the United State’s oil
drilling since 2012 as the explorers take advantage of prices above $50/barrel
for more than two months. Rigs targeting crude oil production in the United
States rose by six 6 to 597 last week, the highest total since October 2015,
according to data released by Baker
Hughes Incorporated. Drillers have added 72 rigs since the beginning of the
year, the best start in five years. The expansion is spreading in Texas and Oklahoma with the Granite Wash play leading the increase this time
around.
Producers are cashing in on a more stable oil market, with prices swinging between $50/barrel and $55/barrel as OPEC and 11 non-OPEC nations cut back production to help reduce global supplies. Saudi Arabia told OPEC it reduced its oil output by the most in eight years according to a report released by the kingdom last week.
“We are seeing the rise
that we anticipated to take place given the OPEC cuts”, Bloomberg intelligence
analyst, Andrew Cosgrove, said by
phone. “These gains are spreading to other plays, and
this is something we are expecting will continue through the first half given
the stability in the price of crude oil in the international market.”
Oil producers have brought 281 crude oil drilling rigs back to work since
drilling bottomed out in May of 2016, the biggest gain since producers added
361 crude oil drilling rigs over the nine months through June of 2012.
Meanwhile, the United States crude inventories rose to 518.1 million barrels
two weeks ago, the highest in weekly data going back to 1982, according to the
energy information Administration.
Drilling is
booming in a few shale plays led by the Permian
Basin in West Texas, New Mexico and the Scoop and Stack formations in
Oklahoma as they offer good returns at a $50/barrel oil price. Producers
including Diamondback Energy
Incorporated and Occidental
Petroleum Corporation remain focused on the Permean while Marathon Oil Corporation intends to
double down on its assets in Oklahoma. Diamondback climbed to a record close
last Wednesday after beating earnings estimates while Occidental looks to sell
assets in South Texas so it can continue to expand in the Permian.
Marathon
plans to double its number of crude oil drilling rigs in the Scoop and Stack to
10 this year. The Permian remains the most attractive play for investors this
year, according to a Bloomberg intelligence survey. The Midland and Delaware
basins within the Permian helped the oilfield reach a new high of $26 billion
in mergers and acquisition activities last year. Last week, other parts of
Texas and Oklahoma began to shine with Granite Wash Basin adding five crude oil
drilling rigs and the Barnett Basin adding two. “The
Granite Wash is located in the Mid-Continent region which is seeing a return of
private operators,” said Cosgrove. “Given the
rise in crude oil prices, this has become one of the basins we anticipate will
grow,” Cosgrove concluded.
Back home in Nigeria, drilling is not booming for reasons bothering dwindled crude oil production due majorly to the activities of vandals but is gradually coming up. The oil majors in Nigeria namely; ExxonMobil, Total, Chevron and Shell Nigeria Exploration and Production Company, SNEPCO have not been encouraged to produce maximally due to the government’s cash call obligations to them hovering over $7B together with the activities of vandals! Therefore, the big players are playing small. The state owned Nigerian National Petroleum Corporation has been pushing for the development of frontier basins, starting with the Chad basin. However, other Basins should be explored. Basins like the Anambra, Dahomey (Tongeji Island) etc.
Nigeria
should seize the opportunity presented by this slight hike resulting from OPEC
and non OPEC member nations production cuts in freeing up cash calls to the oil
majors, engaging the vandals damaging gas and crude oil facilities and creating
a more robust and clement operating environment attractive enough for foreign
direct investment in the sector. The marginal field operators, those still
using crude oil drilling rigs and not those planning to conduct their
operations riglessly, should come together and develop their oil blocks just so
as to partake of the relief the current price regime offers almost two years
hiatus. Afterall, the major contractors and third party contractors have
reduced their rates to a level where they barely manage to break even.
The marginal
field operators, if they agree, can seize this opportunity to play big within
the $50/barrel window. It is the right way to go in a country increasingly
becoming unattractive to the Dollar, the right thing to do to give relief to
the Naira and most certainly, an economically sensible thing to do in an
environment where Shale Oil drilling has contributed in no small measure to the
crash in the international basket price of crude oil for over two years now.
(Guardian)
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