July/August Industry Affairs

Hard times can't dim hopes for oil and gas as NAPE opens

By David Hunn  Houston Chronicle

August 10, 2016

NAPE, the nation's premier conference for buying and selling oil and gas land, opened Wednesday at the downtown convention center, its attendees hoping to cut deals despite two years of hard times.

Signs of the oil crash are everywhere here at the conference formerly known as the North American Prospect Expo. Geologists and geophysicists said they haven't found work in months. Landowners have struggled to lease mineral rights. Drillers talked of canceled contracts and new business strategies.

The conference itself embodies the downturn. Emptier hallways. Smaller booths. Fewer big companies.  Shale pioneer Chesapeake Energy Corp. has pulled out of all annual NAPE shows. Oklahoma City explorer Devon Energy sent workers this summer but no longer has a booth.  Houston-based Asset Risk Management Energy is gone, too.

NAPE expects 3,000 attendees this week at the George R. Brown Convention Center, half the number that attended in summer 2012, when it seemed the shale drilling boom would go on forever.

Walt Wornardt still attended this year, however. He has been in the business for three decades and has gone to NAPE twice every year since it started almost 25 years ago.  Wornardt hasn't been able to find work for nine months.  A geologist, Wornardt studies rock samples to give landowners and drillers insight into the potential for oil and gas underneath them.  But companies, he said, aren't doing much exploration these days.  Instead, they're drilling land they already know has oil. Wornardt said he sent out 40 proposals during the past year to evaluate company wells.  "And I have no returns," he said. "Business is that bad."

And so it went, in the booths and hallways of this summer's NAPE.  Geophysicist Bruce Blake worked in Madrid for the Spanish energy giant Repsol last year.  In February, he was encouraged to retire. Now he's out on his own, an independent consultant.  His last paying assignment was in May.  "We're waiting for oil to rebound," he said.  So, as Blake walked the NAPE floor looking for jobs, he also was watching for oil prospects for himself.  Maybe, at the winter conference, he'll have his own booth, pushing his own prospective oil wells to potential investors.

Justin Burgess, an owner of the small mineral-rights company Arete Acquisitions, said leasing deals are down because companies aren't really looking for more land to drill. But land sales are up, he said, because it's a good time to buy land cheaply and sell it to long-term investors.  "We're meeting fewer people," Burgess said of recent conferences. "But we're meeting more important people."

And David LaPrade, chief executive of USR Energy Ventures, said the downturn has changed the direction of his company. LaPrade spent the last 15 years drilling wells in Malaysia, Indonesia, India, Pakistan, Yemen and other foreign hot spots. But when the crash hit, major oil companies postponed or delayed $10 million in work with USR.  "So I said, 'Let's go back to the States,' " LaPrade said.  Now he's turned part of his drilling firm into an oil production company.  Oil explorers don't have cash to dig wells, he said. So LaPrade offers to put up the equipment and manpower to drill in exchange for a piece of the proceeds.  USR Energy drilled its first well as a production company in East Texas at the end of May.  And how's business?  "It's hard," he said.

 

One Nation, Fueled by Natural Gas

By Justin Fox Bloomberg           

July 28, 2016

With each monthly data release from the Energy Information Administration (there was one on Tuesday) it gets a little clearer. Natural gas has overtaken coal as the main source of electrical power in the U.S.:

 

Gas Passes Coal

Electricity net generation by source, U.S.

Gas's lead over coal will keep growing. Coal-fired generating capacity has fallen 15 percent in the past six years, according to the EIA, and while the pace of coal plant retirements has slowed after a record 2015, there are still a lot of shutdowns planned in the next few years.

A fracking-driven production boom that's lowered gas prices is one reason; tougher environmental rules for power plants (mainly having to do with mercury and air toxins, not carbon emissions) are another. Coal has been caught in a pincer movement between the frackers and the Environmental Protection Agency.

The shift is even more dramatic if you look at it over the long haul. Here are the country's five biggest sources of electrical power as of 2016, and how they've risen or fallen since 1973.

There are a couple of interesting lines missing in the chart. One is petroleum (comprising both fuel oil and petroleum coke, a solid byproduct of oil refining) which was the country's No. 3 energy source for electrical power generation in 1973, and was in second place for a few years after that. The energy crisis of the 1970s left oil much more expensive relative to gas and coal, and power companies gradually switched away from it. Now it accounts for less than 1 percent of electricity generation in the U.S.

Then there's solar, which seems to get the most attention among renewable energy sources but has yet to become a major factor in electricity generation. If you include distributed generation from solar panels on homes and businesses, which the EIA started estimating last year, it has recently passed wood and wood-derived fuels to become the nation's sixth biggest source of electrical power. But it's nowhere near as important as wind (which is itself on the verge of passing hydroelectric to become the No. 4 electricity source).

Wind Is Way Ahead of Solar

U.S. electricity net generation by source, trailing 12 months

So that's the data. What to make of it? I'm not going to get into the pros and cons of coal or nuclear or hydroelectric or wind or solar here. That gets done a lot already, and I don't want to go on forever. But I am interested in this country's ever-increasing dependence on natural gas. It was already the main heating fuel. Now it is also the main source of electricity. It still trails petroleum as the country's leading overall source of energy (automobiles need lots of fuel), but has been getting closer and closer over the past decade.

Natural gas is the cleanest-burning of the fossil fuels, although it does have some environmentally worrisome leakage issues. The hydraulic fracturing techniques that enable drillers to extract gas from shale deposits can sometimes make big messes too. Thanks to fracking, gas is currently abundant in the U.S., and quite cheap.

A new development is that the U.S. gas industry is becoming increasingly connected with global markets. The first tanker of U.S. liquefied natural gas to leave the Gulf Coast destined for East Asia passed through the newly widened Panama Canal this week. That opens up yet another source of demand. Could it mean higher prices? We'll see.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.