March Industry Affairs

Oil CEOs Lobby for Longer Laterals

NewsOk

Adam Wilmoth Published: March 8, 2017

Proposed legislation that would allow oil companies to drill longer horizontal wells could lead to more drilling, increased production and boosted tax revenue, executives from some of the most active oil and natural gas companies in Oklahoma said Tuesday.

The executives and representatives from the Oklahoma Oil and Gas Association met with reporters and lobbied legislators in support of Senate Bill 284 and House Bill 1613, together known as the Oklahoma Energy Jobs Act. The bills would allow companies to drill up to two-mile laterals in all producing rock layers, expanding a process already allowed in shale rock layers.

Similar efforts have failed in recent years, in part because of opposition from the operators of smaller, vertical wells who say the longer laterals can hurt their wells and that the process could cause them to lose their leases.

FourPoint Energy LLC CEO George Solich said the legislation could boost economic activity in Oklahoma  "The passing of this bill could revitalize the western Anadarko Basin as a competitive and economic basin to put capital development dollars to work," he said. "As of today, innovations in technology have continued to catapult us forward as an industry, but the long-lateral regulatory hurdles we are currently facing continue to discourage investment in the state of Oklahoma."

FourPoint is the fifth largest leaseholder in Oklahoma with more than 525,000 acres, mostly in western Oklahoma. The company also has more than 200,000 acres in the same rock formation in the Texas Panhandle, where the company can drill two-mile laterals on all rock layers. Other oil and natural gas-producing states do not have the length limitations that are included in Oklahoma law.

"The Oklahoma Energy Jobs Act will affect productive formations in the western Anadarko Basin that are currently limited to the standard one-mile lateral," Solich said. "With the passage of the Oklahoma Energy Jobs Act, FourPoint intends to make a meaningful impact on the state of Oklahoma based on the number of locations that quickly become economical with long laterals that otherwise would not be drilled at all."

The 2012 Shale Reservoir Development Act allowed companies to drill two-mile laterals in shale rock layers, but most other layers are still restricted to one mile. Longer wells save producers money by allowing them to recover in one well as much oil and natural gas from two, eliminating the cost and time of drilling the second vertical portion.

The process also allows more of the lease to be produced, opening up the portion of the acreage that would be lost to drilling the second vertical and angled well portions.

Under current law, companies may have access to many producing rock layers from one well pad, but may only be able to drill long laterals on a few of those layers.

"It doesn't make sense to allow long laterals in one formation, but not in the others," Devon Energy Corp. CEO Dave Hager said. "Geology doesn't recognize state lines. In Texas and other states where we're active, we are not subject to the same restrictions as in Oklahoma. That puts Oklahoma at a competitive disadvantage in a highly competitive industry, and that's not necessary."

Striking 'shale'

SB 284 and HB 1613 would strike the word "shale" from the state's existing Shale Reservoir Development Act. The bills are authored by Senate President Pro Tempore Mike Schulz, R-Altus, and Rep. Weldon Watson, R-Tulsa, chairman of the House Energy and Natural Resources Committee.

At least four other versions of the long lateral bill are working their way through the Legislature. The Oklahoma Independent Petroleum Association has not endorsed any of the bills, but the group is in support of longer laterals, said Tim Wigley, OIPA's executive vice president of governmental affairs.  "I don't think there's any question that the ability to draw long laterals would be good for the industry as well as for the state," he said in an interview with The Oklahoman. "It makes sense to get legislation to allow this to happen."

The association has not yet reached a consensus on how best to balance the needs of all producers.  "Everybody's been sitting around the table and trying to come up with a compromise that gives you the confidence and protection you seek, but also the freedom for the industry," Wigley said. "Long laterals, particularity in the SCOOP and STACK, are going to be very important. If we want to continue on this upward trend as far as investment dollars coming into the state of Oklahoma, that's a tool we are going to need to have. There's a good healthy discussion, but I feel confident they're moving in the right direction to get us on the right side of the issue where we're supporting passage of meaningful legislation."

Oklahoma oilman Mike Cantrell has opposed similar legislation in previous years. He said Tuesday that vertical well producers do not recover oil and natural gas from shale and are not opposed to long wells in those layers.  "To us it is a taking when they drill horizontally into formations that we are producing with vertical wells and apply massive frack jobs that oftentimes destroy the vertical production," Cantrell said in an email. "I have heard personally from producers who have had wells destroyed and my estimation is that there may be a hundred or more.  In my view, the ends never justifies the means. Property rights should be protected, not taken."

Larger producers backing the Oklahoma Energy Jobs Act of 2017, however, say horizontal wells rarely hurt vertical wells and that there are existing channels to address those concerns.  "The Corporation Commission already covers the landscape of how this can be dealt with," Newfield Exploration CEO Lee Boothby said following Tuesday's news conference. "The regulatory framework has always been constructive, looking for win-win solutions. I think it will continue to be that way."

Goldman Sachs Sees ‘’Long-term’’ Oil Prices Below $60

Oilprice.com  Zainab Calcuttawala Mar 07, 2017, 1:21 PM CST

Oil prices will settle in the $55-$60 range in the long term, according to Jeff Currie, the lead commodities researcher at Goldman Sachs, who spoke to Bloomberg this week regarding new developments in commodities markets.

In the interview, Currie described a survey he conducted with oil industry leaders in Texas. He asked members of the Houston energy sector where they expected prices to go over the long term and they answered with consensus: somewhere between $55 to $60.  Just a few years ago, the range would be a $50 band, he said, adding that the new certainty in supplies has caused the near unanimous agreement.

Compliance by members of the Organization of Petroleum Exporting Countries (OPEC) to their November deal to cut production has been stronger than anticipated, Currie noted. The latest figures say the bloc has cut 94 percent of what they promised.  But American producers – who are not bound to any international production limits – are counteracting many of the corrective measures on the supply side. Shale oil production, which takes little time to bring online once prices become favorable, is slated to enter a boom, with output exceeding nine million barrels by the end of 2017.

“The U.S. supply response seems to be gaining momentum much faster than previously thought,” Currie said. “It’s because of two factors. One is productivity gains, but also access to capital.”  Still, the Wall Street researcher characterized underlying supply-demand fundamentals as “supportive” as opposed to the market dynamic before the November deal.

“In 2012 and 2013, it was a period when the oil [barrel] price started the year at something like $110.60 and finished the year at $110.50, but you still generated an 11 percent annualized return over that period,” he said. “We think we are headed into a very similar environment.”