IPAA Oil & Gas Producing Industry in Your State - Energy in Depth

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THE OIL & NATURAL GAS PRODUCING INDUSTRY IN YOUR STATE Vol. 77 No. 19 Editor: Frederick J. Lawrence The Oil & Natural Gas Producing Industry In Your State is published each year as the special statistical issue of America’s Independent, official magazine of the Independent Petroleum Association of America, (IPAA). Roustabout and corporate members of IPAA receive one free copy of this issue; additional copies or regular member copies are available for $25 each. Non-members of IPAA are charged $75 per copy. Complimentary subscribers are entitled to one free issue; additional copies cost $25 each. IPAA offers the following publications as part of its Economic Reports: The Oil & Natural Gas Producing Industry In Your State (annual) U.S. Petroleum Statistics (annual) America’s Independent magazine (monthly) Industry Fact Sheets (periodically) International Primer (first edition & supplements) International Taxation Primer IPAA International Activity Survey IPAA Members may receive all the above reports on a regular basis by paying $75 per year. Non-members of IPAA may subscribe to the reports listed above for $400 per year. Reports also may be purchased on an individual basis. To subscribe or inquire about any of IPAA’s Economic Reports, contact: Independent Petroleum Association of America Information Services Department (flawrence@ipaa.org) 1201 15th St., N.W., Suite 300 Washington, D.C. 20005 Phone: 202-857-4722 Fax: 202-857-0444 www.ipaa.org 2 AMERICA’S INDEPENDENT COMPILED BY IPAA FEBRUARY 2009
THE YEAR IN REVIEW: INTRODUCTION TO 2006 O&G IN YOUR STATE 2006: U.S Energy Future at a Crossroads Pete Stark, Ph. D., IHS Introduction: In the wake of Hurricanes Katrina and Rita, anxieties about the security of U.S. energy supplies soared while the petroleum industry focused on restoring oil and gas production and realigning supply chains. During June 2006, the Minerals Management Service (MMS) reported that hurricane damages resulted in cumulative loss of 162 MMb of oil production and 784 Bcf of cumulative gas production from the Federal Offshore Gulf of Mexico. This amounted to 30% of annual oil production and 21% of annual natural gas production from this province. Vulnerability of offshore Gulf of Mexico production and near-shore facilities to hurricane damage prompted the U.S. Energy Information Agency (EIA) to add a hurricane risk factor to its oil and gas production forecasts. Energy policy makers looked for options to improve the security of oil and gas supplies and calls for “energy independence” and freedom from “foreign” oil imports made headlines during the first quarter of 2006. The petroleum industry noted that a simple option to reduce the vulnerability of U.S. oil and gas supplies would be to open access to prospective offshore and Arctic areas that have been off limits to explorers. Fears abounded at the start of the year that tight oil and gas supplies would substantially increase prices during the year. On January 3, 2006 U.S. crude oil was $63.14 per barrel, almost 50% higher than the price on January 3, 2005. Concerns about political risks in the Middle East, supply disruptions in other important oil producing countries like Nigeria and OPEC’s dwindling surplus producing capacity were cited as drivers for high oil prices even though January 2006 U.S. crude oil stocks stood at 321 MMb, at the top of the 5-year maximum range for this month. Crude oil stocks continued to build through most of the year reaching a high of 340 MMb during November. Monthly oil prices eventually peaked at $74.40 per barrel during July 2006 and the year closed at $57.75 per barrel – off $5.39 from January 3, 2006. The 2006 annual average oil price, nevertheless, was $65.58, almost 16% higher than in 2005. The abrupt and unexpected turnaround in the U.S. gas market was a relief for consumers but created crossroads for producers, planners and policy makers alike. During 1997, U.S. gas production essentially reached a plateau. From 1997 to 2005, U.S. gas production ranged from 56 – 60 Bcfd before a series of hurricanes struck the Gulf Coast. To sustain this decade-long plateau, U.S. gas well completions more than doubled from about 12,500 wells during 1997 to 30,349 gas wells during 2006. Increased drilling was required to offset the decline in high productivity conventional offshore and onshore gas production with lower productivity gas wells from unconventional reservoirs. From 1997 through 2005 this looked to be a losing game. Combined offshore and onshore conventional gas production lost 4,056 Bcf (including the impact of the 2005 hurricanes) while unconventional gas production from coalbed methane, tight sands and shales increased by 3,471 Bcf. Growth in gas production from the Barnett shale in the Ft. Worth Basin plus coalbed methane and tight sands in Rocky Mountain basins did not offset all of the decline in conventional gas but it saved the day for U.S. gas consumers. U.S. gas well productivity, however, was decreasing as average peak well production dropped from 1,324 Mcfd in 1997 to 678 Mcfd per well in 2006. As a result, industry had to drill more gas wells each year just to replace production. Shortages of skilled manpower arose and costs increased 65% during 2005 and 2006 as industry pressed to drill more wells. Moreover, community interests and environmental advocates pressed to curtail the expansion of unconventional gas drilling. Despite these challenges, U.S. gas production reached 17,638 Bcf for the year – the largest volume since 2001. Nevertheless, a paradox emerged as planners and policy makers looked for alternate sources of gas supplies and tapped LNG imports as the solution to meet future U.S. natural gas demand. Permits for LNG regassification facilities were put on a fast track and projects were launched with the objective to accommodate as much as 9 Bcfd in LNG imports during 2009 and as much as 20 Bcfd by 2020. Insights on key E&P trends that are embedded in the 2006 data in this publication are summarized below: The behavior of natural gas prices was more surprising. The January 3, 2006 U.S. natural gas spot price was $10.63 per Mcf, some 84% higher than the price on January 3, 2005 and the EIA forecast that Henry Hub gas would average about $9.50 per Mcf for the year. The weather and a demand slump in response to four months of double digit gas prices, though, helped to paint a different picture. Mild mid-winter weather curtailed gas demand for heating and drove seasonal gas storage volumes from a scant 6% above average level at yearend 2005 to almost 48% above average by mid-February 2006. Correspondingly, by March 1 the Henry Hub spot gas price dropped to $6.73 per Mcf – a 37% decline from the first of the year. The gas storage surplus prevailed for most of the year and natural gas spot price averaged $6.91 during 2006, off $2.06 or 23% from 2005. Natural Gas Play Highlights: Even though gas prices slumped during the first quarter, independent operators continued to expand their assessments of unconventional gas plays throughout 2006. Significant industry developments involved the expanded quest to test the potential of shale source rocks throughout the U.S. Importantly, breakthroughs in staged hydraulic fracs and horizontal well completions that were pioneered in the Barnett shale helped to establish several important new shale gas plays. Southwestern Energy drove the successful expansion of the Fayetteville shale in the Arkoma Basin of Arkansas and achieved initial production rates in excess of 2 MMcfd from its horizontal wells. THE YEAR IN REVIEW COMPILED BY IPAA FEBRUARY 2009 AMERICA’S INDEPENDENT 3
Page 1 and 2: IPAA Oil & Gas Producing Industry i
Page 3: INDEPENDENT PETROLEUM ASSOCIATION O
Page 7 and 8: THE YEAR IN REVIEW: INTRODUCTION TO
Page 9 and 10: STATE ENERGY CONTACTS Alabama State
Page 11 and 12: COOPERATING OIL & GAS ASSOCIATIONS
Page 13 and 14: STATE EDUCATION PROGRAMS In 2006, I
Page 15 and 16: STATE EDUCATION PROGRAMS Mewbourne
Page 17 and 18: ADDITIONAL ENERGY EDUCATION RESOURC
Page 19 and 20: OIL AND GAS MUSEUMS Oil and Gas Mus
Page 21 and 22: The American Oil & Gas Historical S
Page 23 and 24: CRUDE OIL SUMMARY Year Production I
Page 25 and 26: DRILLING SUMMARY Year Seismic Crews
Page 27 and 28: 2006 Industry Statistics Number of
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2006 Industry Statistics Number of
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NEW-FIELD WILDCAT WELLS DRILLED 199
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DEVELOPMENT WELLS DRILLED 1997 1998
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PRODUCING CRUDE WELLS 1997 1998 199
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CRUDE OIL PRODUCTION (thous. bbls.)
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PRODUCING MARGINAL OIL WELLS 1997 1
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PRODUCING MARGINAL NATURAL GAS WELL
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COST OF DRILLING AND EQUIPPING WELL
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NATURAL GAS REVENUES (thous. $.) 19
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SEVERANCE AND PRODUCTION TAXES ( th
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NATURAL GAS WELLHEAD PRICES ($/Mcf)
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WHOLESALE PRICES—TOTAL U.S. Year
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NATURAL GAS CONSUMPTION (MMcf.) 199
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REFERENCE INFORMATION Data Sources
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