Jul 13, 2020 3:11 PM

News From the Oil Patch 7/13

Posted Jul 13, 2020 3:11 PM

Statewide crude production dropped 1.6% in the first quarter of 2020 compared to a year earlier, to just below eight million barrels. First-quarter Kansas production averaged 88-thousand barrels per day according to the latest update from the Kansas Geological Survey. Production in the first three months of the year increased over last year in several counties. Barton County output was up about a thousand barrels over last year, at just short of 400,000 barrels, or 4,386 barrels per day. Ellis County production topped 629,000 barrels, an increase of about five thousand barrels year-on-year. That's an average of 6,916 barrels per day. Russell County production was up about three thousand barrels year on year, to just over four thousand barrels per day.  At about 2,815 barrels per day, Stafford County's first quarter totals outpaced last year by 2,617 barrels.

Kansas crude-oil prices in June were down nearly four dollars from a month earlier. Prices at CHS in McPherson were down nearly $20 from a year earlier. Many operators, and bankers, plan long-term budgets based on the average monthly price of crude oil. The average for June in Kansas was $28.61 per barrel, down more than $16 from the average midway through last year.

Independent Oil & Gas Service reports some drilling activity returning to western Kansas.  There are seven active drilling rigs west of Wichita, up three from last week. There's one active rig in eastern Kansas, unchanged from a week earlier.  Operators are drilling on one lease in Russell County, and are about to spud a new well in Stafford County.

Rig Counts across the U.S. were down five rigs at 258. Baker Hughes reports the count in Texas was down five, and New Mexico was up one.

Regulators approved fifteen permits for drilling at new locations last week, 229 so far this year. There were nine in eastern Kansas and six west of Wichita, including one each in Russell and Stafford counties.

Independent Oil & Gas Service reports nine newly-completed wells during the week ending July 9. Seven were in Western Kansas, including one in Stafford County.

The Kansas Corporation Commission reports 29 new intent-to-drill notices filed in the month of June across Kansas, compared to 39 in May and 115 in June 2019.  The total midway through the year 2020 is 268. That's down by about half from a year earlier. The KCC reported one new intent-to-drill notice filed in Barton County last month.

For the second week in a row, U.S. crude production increased slightly, but remained below eleven million barrels per day. The Energy Information Administration reported U.S. output for the week ending July 3 increased 36-thousand barrels per day, to 10.9 million barrels per day. The government said U.S. crude-oil imports averaged 7.4 million barrels per day, an increase of  1.4 million barrels per day from the week before.  EIA said over the past four weeks, imports averaged eight-point-five percent less than the same period last year. EIA reported a big increase in U.S. crude-oil inventories, up 5.7 million barrels from the week before. Stockpiles are about 18% above the five-year average for this time of year.

The government says U.S. crude-oil production in the month April dropped nearly eight percent, down 33 million barrels from the near-record production achieved the month before just as prices began to plummet. Monthly numbers from the U.S. Energy Information Administration are more reliable than the weekly reports. Operators in the U.S. pumped 12.06 million barrels per day in April. That's despite prices that dropped from over $50 to under $20 a barrel. EIA said Kansas production in April was down 16% from the month before, and was 20% lower than a year earlier.  According to the federal report, Kansas operators produced 75,533 barrels per day in April, compared to nearly 90,000 barrels per day in March and over 94,000 barrels per day in April of last year.

North Dakota regulators rejected the idea of placing limits on the state's oil production to prevent waste amid the collapse in prices. The state joins Texas and Oklahoma which both nixed proration measures this year. The Bismarck Tribune reports the decision by the North Dakota Industrial Commission was unanimous. During a hearing in May, the state's largest producer, Continental Resources, argued in favor of the idea, to provide coordination across the region, as each producer reacted differently to low prices. Slawson Exploration sought state intervention to ensure companies did not rush to boost production as prices rise, thus flooding the market and drawing out the price recovery. But many tribal leaders, producers and the North Dakota Petroleum Council asked the state to step back and let the market decide.  

North Dakota could take a big hit if the closure of the Dakota Access pipeline survives an appeal. A U.S. district court judge ruled that the pipeline must be shut down, and drained, by Aug. 5. This marks the first time a major pipeline in service was ordered shut because of environmental concerns. The court decided it should remain closed until a proper environmental review is complete. That process could extend into next year. The system currently carries more than a third of the region's oil to market. The alternative of using rail would more than double transportation costs. The ruling is the latest twist in a long-running legal battle. Tribal leaders have long argued that a spill under the nearby Missouri River could pollute the water they rely on for fishing, drinking and religious ceremonies. Without addressing the environmental concerns, the operator of the pipeline promised a speedy appeal.

The Association of American Railroads reports oil-by-rail year-to-date totals midway through 2020 are down 11% from a year ago. Total freight traffic is down 13%.  For the week ending July 4, there were 9,934 tanker cars moving petroleum or petroleum products, down a thousand cars from the week before and more than 21% below the weekly total a year ago.