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The Week In Numbers for the Week Ending 10-14-2016

          In each edition of the Standard, we strive to provide you a bare bones summary of what happened to the price of WTI, Natural Gas, and Brent Crude. In addition, we summarize the major reports from API and EIA on Inventory Data. And we also throw in the rig count for good measure.

WTI Open on October 03, 2016$48.04WTI as of 12:00 PM on October 14, 2016:$50.04  Brent Open October 03, 2016:$50.02Brent as of 12:00 PM on October 03, 2016, 2016: $51.62  Natural Gas Open on October 03, 2016:$2.905NG as of 12:00 PM on October 03, 2016:$3.288

 

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Short Takes for the Week of 10-14-16

News about New Fields/ Developments

Russian Energy giant Gazprom reported it has discovered new gas deposits during exploration at the Kirinskoye field in the Sea of Okhotsk near Russia's Sakhalin island. Shell may also get a piece of the find, but the outcome is uncertain because of the sanctions leveled against Russia. Gazprom also plans to launch a third LNG production train in 2021, possibly to newly drilled fields. Sakhalin-2, Russia's sole LNG plant is run by Gazprom, Royal Dutch Shell, Japan's Mitsui and Mitsubishi, operates two production lines with a combined capacity of 10M metric tons/year of LNG, and the third train should add another 5M tons. ()

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Ty’s Take for the Week of 10-14-16

            Saudi Arabia’s Energy Minister Khalid Al-Falih said Monday that he is optimistic about reaching a deal given the interest expressed by both OPEC and non-OPEC members (particularly Russia). In fact, he was so optimistic that he indicated prices could recover to as high as $60.00 per barrel by the end of 2016.

            I think it is interesting that the CEO of Apache, in the Q2 earnings call, also called $60.00 per barrel by end of 2016, and a chorus of other CEO’s called bottom or said they were close to calling bottom.

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OPEC and Russia Sending Signals, U.S. Poised to Start Recovery

            OPEC seems to be on a mission to get some sort of production deal in place since their announcement in Algiers last month that the cartel would work to freeze production. Since the meeting, it appears that OPEC members have had several meetings among themselves in an effort to bring some shape to the deal.

            But it will be challenging to get a deal done to say the least. OPEC reported an increase in its oil production in September to the highest in at least eight years and raised its forecast for 2017 non-OPEC supply growth, pointing to a larger surplus next year despite the group's deal to cut output. The Organization of the Petroleum Exporting Countries pumped 33.39 million barrels per day (bpd) last month, according to figures OPEC collects from secondary sources, up 220,000 bpd from August, OPEC said in a monthly report on Wednesday. Under the terms of the preliminary “agreement to agree” established last month, OPEC is going to curb production to between 32.50 and 33.00 million bpd.

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Wood Group Delivers Massive Savings via Standardization

         Earlier this week, Wood Group announced that they had received permission to us a well pad design for work at the Firebag in-situ site in Alberta, Canada. Suncor Energy is the operator and agreed to use Wood Group’s standard well pad design.

         The cost savings are astronomical. Over the estimated life of the wellpad, two-thirds of all capital spending is on the well pads and gathering line infrastructure. A cost that varied between C$4 million to C$9 million per well pair. Using the standard design allows that cost to be reduced to approximately C$2 million per well pair. The design delivers cost savings by using a proven design, rather than a bespoke design so common in the industry and thereby eliminates costs associated with engineering, procurement, and project management. This design can be used in numerous aspects of heavy oil production.

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Oil Data: A Real Problem

            One major problem not often discussed is the data we get regarding oil. We all await reports from OPEC, EIA, IEA, and others to help us determine what is happening with oil markets. These reports detail storage, production, and other key indicators that should help us determine when the market will return to balance and how long it will stay there. But the issues with the data are numerous.

The problem is that this data isn’t terribly accurate, especially figures on oil production that come out of countries that are known for their secrecy – like Saudi Arabia.

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The Week In Numbers for the Week Ending 9-30-2016

          Each week, we strive to provide you a bare bones summary of what happened to the price of WTI, Natural Gas, and Brent Crude. In addition, we summarize the major reports from API and EIA on Inventory Data. And we also throw in the rig count for good measure.

WTI Open on September 19, 2016 $43.18WTI as of 12:00 PM on September 30, 2016 $48.08  Brent Open on September 19, 2016 $46.01Brent as on September 30, 2016 $50.05  Natural Gas Open on September 19, 2016 $2.956NG as of 12:00 PM on September 30, 2016 $2.898

 

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Kazakh Field Set to Resume Production By End - 2016

         While we are all getting excited about the OPEC production freeze, I thought I would put it in perspective. This week, it was initially announced (the statement was later withdrawn), that the massive Kashagan field in Kazakhstan would resume presume production in a matter of days. Plans called for a restart with initial production of 75,000 barrels per day (bpd) in October, rising to between 150,000 and 180,000 bpd in November and December.

         However, this statement was later retracted, and it now appears that the field is due to come back online by the end of the year. Production is expected to ramp up initially to 180,000 barrels per day and increase further to 370,000 bpd during 2017.

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Ty’s Take for Week Ending September 30, 2016

          So, let me start this week’s column with a frank admission: I was wrong.   Well, not totally. I gave the possibility of an OPEC freeze less than a 20% chance of getting done.   And frankly, I’m flabbergasted that they have an agreement. Sorta of. In principal. Although even as of last night, we might already see some fault lines developing….

So, while I am extremely excited about the possibility of a production freeze, I must issue you all a few words of caution.

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Spending Expected to Increase in 2017

         Even before the preliminary OPEC freeze agreement, Bloomberg reported that the oil industry is ready to start adding some CAPEX next year.

According to Blomberg, companies will increase spend by about 2.5% next year, and then increase spend by 7-14% in 2018. Of course, this amount is well below the average annualized compound rate we noted over the last decade and reported in this week’s article OPEC Reaches An Agreement To Freeze.. Sort of. I would note that this goes against the IEA forecast for 2017 that companies might continue to cut CAPEX and also goes against the majority of big oil forecasts reported on Q2 earnings calls (SEE our article Oil Majors Reported Earnings Last Week) in which the majority of oil companies forecast relatively flat CAPEX for 2017.

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