("With Slowing Demand, US Crude Inventories Reach
All-Time High")
News from the Oil Patch, June 29
John P. Tretbar
Kansas Common crude at CHS in
McPherson dropped a quarter on Friday, to start the week Monday at $28.75 a
barrel. That's down more than a dollar from a week ago, but three dollars
higher than at the first of the month. Since the beginning of the year, Kansas
Common is down more than $22 a barrel.
Two leading oil-price reporting agencies announced new crude-oil benchmarks to
address what they call "the distortions of domestic infrastructure
economics." S&P Global Platts and Argus Media are both trying to break
away from the traditional landlocked WTI benchmark, just over two months
after U.S. crude futures prices plunged into negative territory for the first
time in history. Platts American GulfCoast Select will reflect the value of
waterborne light sweet crude supplied from the Permian Basin on major pipelines
to the Gulf. Argus AGS is also designed to reflect the growing importance
of the U.S. Gulf Coast as a major export hub.
Baker Hughes reports 265 active drilling rigs across the U.S. Friday, which is
down one oil rig from a week earlier. The count in Texas and Oklahoma were both
up one, while New Mexico, Wyoming and Colorado were each down one. Independent
Oil & Gas Service reports two active rigs in eastern Kansas last week,
which is unchanged from the week before. West of Wichita there are eight active
rigs, up one.
There were no new drilling permits issued in the State of Kansas during the
last week. For the last week in June, our total is 210 permits for drilling at
new locations, compared to 455 new permits at the halfway point last year.
Operators completed 25 wells last week across the state, nine of them west of
Wichita including one in Stafford County. Independent Oil and Gas Service says
that brings the year-to-date total to 517 completions compared to 750 at this
time last year.
The government reported a build in U.S. crude-oil inventories of 1.4 million
barrels. The Energy Information Administration says stockpiles reached an
all-time high of nearly 541 million barrels, 16% above the five-year average
for this time of year. The previous record was set in March 2017. The
Energy Information Administration says the U.S. is using 62% of its working
storage capacity, with usage at Cushing down to 58%.
U.S. crude oil production increased last week by more than half a million
barrels per day. The Energy Information Administration reported average output
of 10.96 million [["ten point nine six million"]] barrels per day for
the week ending June 19. A year ago, domestic production was over 12 million
barrels per day.
EIA says oil and gas producers managed to set production records in the U.S.
last year with fewer wells and fewer active drilling rigs. In a report last
week, the government said one factor in the increase in drilling efficiency is
the ability to contact more of a formation using horizontal drilling. In 2019,
operators set records producing 12.2 million barrels per day of crude and 111.5
million cubic feet per day of natural gas. EIA cites data from Baker Hughes and
IHS Markit showing the average rig count per month last year was 943 and the
average count of new wells drilled per month was 1,400. Both were in the lower
end of the range during the past 45 years, despite record production.
EIA reported a drop in imports to 6.5 million barrels per day for the week
ending June 19. The four-week average is down more than eleven percent from the
same period a year ago.
Oil-by-rail traffic dropped by 34 tanker cars last week to 9,402 cars. The
Association of American Railroads says that's down more than 33 percent from
the same week a year ago.
Oklahoma based energy powerhouse Chesapeake Energy has filed for bankruptcy
protection. Founded in 1989 with an initial $50,000 investment, Chesapeake lost
an eye-popping $8.3 billion in the first quarter of this year, and has a
current debt load of nearly $9 billion dollars. It has entered a plan with
lenders to cut $7 billion of its debt and will continue to operate as usual
during the bankruptcy process. The company was a leader in the fracking boom,
using unconventional techniques to extract oil and gas. It became a colossus in
the energy markets, eventually reaching a market valuation of more than $37
billion. The company closed Friday valued at around $115 million. Despite those
problems, the company's CEO last year remained the highest-paid CEO in Oklahoma
with $15.4 million in compensation.
Colorado's governor on Monday named the new five-member commission which will
craft and put into place major changes in the oil and gas industry there. A new
state law requires regulators to shift focus toward the environment and public
health. Gov. Jared Polis named Colorado Oil and Gas Conservation
Commission's current director, Jeff Robbins, to serve as chair of the new
commission. He said Julie Murphy, chief of staff and senior policy adviser with
the agency, will take over as director on July 1. The Denver Post reports the
other four members of the commission have a mix of expertise in public health,
the oil and gas industry, the environmental community and local government land
use issues. They are: Priya K. Nanjappa (director of operations at Conservation
Science Partners Inc.), Karin L. McGowan (deputy executive director of the
Colorado Department of Public Health and Environment), Gunnison County
Commissioner John Messner, who serves on the existing commission, will bring a
local government perspective. Attorney Bill Gonzalez of Denver is a former land
manager for Occidental Petroleum. Robbins will retain his director salary at
$161,700 while the other four commissioners will be paid $150,000 annually in
their new roles.
The oil and gas industry in Canada continues its slump, with rig counts at
record lows and plummeting industry employment. Compared to last year, energy
employment in Canada is down more than 25-thousand jobs, a decline of 14%. The
drilling rig count in Canada fell 86% from a year ago to just 17 active rigs
last week, an all time low according to Baker Hughes.