The oil and gas industry is relying more on social media tools such as instant messaging as colleagues see greater value in collaboration, according to a survey out today.

Today, 74 percent of industry professionals use social media for business collaboration, up from 62 percent a year ago, found the survey of 205 employees at oil and gas-related companies conducted by Microsoft and Accenture.

The most popular technology is public instant-messaging tools, with 38 percent of respondents saying they use IM, up from 11 percent last year. Usage of internal company social networks also rose to 33 percent from 17 percent a year ago, the survey said.

The trend comes as industry colleagues say they are working together more — partly in an effort to transfer knowledge from a huge upcoming wave of retiring professionals to a smaller, younger workforce.  Technology has also improved to allow interaction with workers at any time and anywhere around the globe, the survey said.

The results of the study were made public today at the Microsoft Global Energy Forum 2011 in Houston.

Original Article

MIT alumnus Steven E. Koonin, DoE under secretary for science, says economics, not technology, is the driver.

David L. Chandler, MIT News Office

As a theoretical physicist by training, Steven E. Koonin PhD ’75 might have been expected to focus his talk at MIT on Wednesday, Sept. 22, on the scientific and technological aspects of energy policy. But he made it clear right away that business and economics are the real keys to progress in the energy frontier.

It’s the economics that are “absolutely essential if the technologies are going to have an impact,” he said at the outset of the annual Hoyt C. Hottel lecture sponsored by the MIT Department of Chemical Engineering, before a packed hall in the Stata Center.

“There is an urgency” about dealing with the problems of energy just from a national-security perspective, even apart from the dangers of climate change, he said, pointing out that the United States currently sends about $1 billion a day to other nations to feed our petroleum appetite. That makes us “subject to the actions and fates of centers distant from us,” he said.

But the decisions about building new power plants or investing in major new energy infrastructure are more complex than most people realize, he said. Having spent five years working for BP before assuming his present government post (as the nation’s second under secretary for science at the Department of Energy), he says he learned a great deal about that complexity. “I can tell you, it was an eye opener,” he said.

“If you want to change the energy industry, you should get to know it,” he said. “The energy-supply business is not simple, and the people in it are not troglodytes.”

As someone with a long academic background — he spent years as a professor at Caltech and then almost a decade as its provost — he postulated the issue in the form of a simple syllogism:

* Almost the entire energy industry, with only a few exceptions, is in the hands of private industry;

* Industry’s primary goal is a legal and predictable profit;

* Therefore, innovation in the energy supply will only reach a significant scale when it is profitable or mandated.

“Industry’s goal is not to deploy the most innovative or the greenest technology. The goal is to make money,” he said. And the scale of investments in energy is so vast that even the government is not in a position to make much of a dent through direct investment: A single, large oil company spends almost as much on research and development per year as the entire Department of Energy budget, he said.

So to spur innovation and the deployment of new forms of energy, regulation and financial incentives are key, he said. He cited as an example the way installations of new wind turbines in the United States have risen and fallen in lockstep with the back-and-forth passage and repeal of production tax credits for the industry.

But technological innovation still plays an important role, he said. While much of the innovation in energy has already shifted overseas, he said, the U.S. continues to dominate in at least one area that could provide a significant advantage in the development of new energy options: Sophisticated computer simulations, an area of technology initially developed under the DoE to foster research on nuclear weapons without the need for actual nuclear-bomb tests. He noted that such simulations, with DoE’s help, made it possible for Goodyear to develop an innovative new line of tires in a fraction of the time such development would normally take — an advance that may have saved the company from the brink of bankruptcy.

“This is a uniquely U.S. capability, and it gives us a competitive advantage,” he said.

Original Article

Alexander Montano, managing director of the Corporate Finance Group with California-based C. K. Cooper & Co., puts a lot of faith in technology when it comes to making oil and gas plays pay. Alex sees major opportunities for new technology in old oil basins and suggests some names making good on that thesis in this exclusive interview with The Energy Report.

The Energy Report: Alex, oil traders seem to be showing a growing confidence that U.S. economic growth will rebound next year. This is evidenced by the fact that they’re taking advantage of the gaps between the current prices for crude and the six-month contracts, which are due early next year. Is C. K. Copper seeing similarly bullish prospects for the U.S. economy and oil prices in general in 2011? What’s your outlook?

Alexander Montano: Well, we understand that oil prices are to some extent linked directly to economic growth. But we think that more and more the outlook for oil prices is going to be less dependent upon U.S. economic growth and is going to become more a factor of global growth. We are not extremely bullish on the U.S. economy in 2011. We believe the recovery is happening, but we expect it to be slow and drawn out. We don’t think it’s going to be much fun.

But we believe that global demand is growing. We believe that the macroeconomic picture looks very strong. We remain bullish on oil into 2011 with a price between $70 and $85 a barrel.

TER: In which regions of the world do you see growth occurring?

AM: We think that it’s going to continue to come from China and India. We think Latin America is going to remain pretty strong. We think that a lot of the emerging players are whetting their appetite on oil and that appetite is going to continue to grow.

TER: Along those lines, OPEC, the Organization of Petroleum Exporting Countries, turned 50 last week. Its control of the oil market is obviously less substantial than it used to be. What impact is OPEC having on the market now?

AM: Well, I think you correctly said that its direct impact in the supply/demand equation has been watered down over the last couple of decades. But I think that from a market leadership standpoint, they are still the clearest voice out there. I think that when OPEC establishes what they believe the oil price should be, whether it’s directly a result of their production or not, the oil markets generally adapt to that. As far as short-term swings in production and the ability to fill necessary gaps go, OPEC remains the primary supplier. It’s an organization that’s been up and down, but I think they continue to be the leader as far as sentiment on world oil prices. I think people still respect that position.

TER: OPEC leaders are on record saying that they consider the current oil price “ideal” and that they will try to keep the oil price where it is. Do you think that they still hold enough influence to keep oil in the $80 range?

AM: I do. We’re believers that demand growth is going to continue. I think if you couple demand growth with OPEC’s willingness to basically manage supply better than they have historically, then we think that that price target is doable. If you could have a relatively defined price range and the commodities stay within that range, it is a win-win. It’s a win for the industry. It’s a win for the consumer. We understand that and believe in what they’re trying to accomplish.

TER: What’s your investment philosophy when it comes to oil and gas?

AM: We focus on technology. We believe that this is a much more technology-driven industry than anything else. Here in California there’s a lot of heavy oil. Heavy oil has become a very fundamental piece of the supply picture in the United States. You take a look at what’s happening with the heavy oil from the oil sands in Canada. Technology is revolutionizing the economic threshold there. We believe that there are lots of known reserves that will have a meaningful impact on the market in the future. It’ll be technology that will make those resources work.

We, generally, try to target companies that are going to apply proven technology in areas that have not been subjected to that technology before. We believe that as these companies are successful, they become an attractive target for larger companies. We tend to focus on companies with a market cap of $1.5 billion or less that we believe have some core thesis that’s going to drive their share price. We believe there are companies working in certain geological plays that are hopefully bringing a proven technology to unlock the value there.

TER: Are you talking about things like old oil basins that are no longer economic with vertical wells, but that could perhaps be economic again through horizontal drilling and other newer extraction methods?

AM: Yes, horizontal fracking, water floods and tertiary recovery. The amount of knowledge in the industry is increasing quickly. A lot of times it’s just a question of applying the right technology.

TER: What are some names that have found the right technology in some older plays?

AM: Evolution Petroleum Corporation (NYSE:EPM) is a company that, in our opinion, developed and put together a play for a CO2 flood at the Delhi Field in the southeastern U.S. They were able to turn that over to Denbury Resources Inc. (NYSE:DNR). They got a pretty nice upfront payment, and they have a production royalty. That was four or five years ago. Denbury has since basically developed the project to a point where it’s a solid, safe annuity.

Evolution just came out with year-end reserves in the neighborhood of 9 million barrels, and it’s a little company. Here’s a company that’s got a base value, but at the same time they’re going into the Austin Chalk to apply new technology there and hopefully increase value. And they’ve got this new “artificial lift” technology that they’re applying to uneconomic wells in Texas. With Evolution, the downside is protected because of their Delhi Field with Denbury, and all the other stuff is upside. If you’re an investor and you’ve been waiting for three or four years, that risk has been basically removed and you’re in a position to reap the upside.

TER: What’s their position in the Delhi Field versus Denbury’s?

AM: They basically have a back-in option after Denbury recoups its investment. That’s somewhere between 20% and 25%. The reserves they booked are based on that deal. Our equity analysts have a target price in the $9 range for Evolution. They believe that the company is already worth $7 or $8, and the stock’s still trading at a discount to that.

TER: Is there another investment thesis you like that’s being applied and that looks appealing?

AM: Like I said, we like the idea of somebody buying an asset, unlocking its value and having another company buy them. That’s why we like a company called Miller Energy Resources (NASDAQ:MILL).

They probably did the deal of the year in 2009 when they acquired the assets of a Canadian company called Pacific Energy. Pacific had bought those assets from Forest Oil Corporation (NYSE:FST) and probably invested in the neighborhood of $500 million in them. But when the credit crunch hit, Pacific was overleveraged and it ended up in bankruptcy.

Basically, through tenacity, Miller bought the cherries of Pacific’s Alaskan assets for $5. Their fair market value is probably somewhere around $300 million. It’s almost too good to believe. But as Miller restores a lot of the production that was shut down or fixes wells that aren’t producing at maximum rates, the market is really going to take notice. We think Miller’s fair value is in the $12 range; it’s currently trading somewhere just below $5. There’s very little institutional ownership at this point. We think it’s one of those companies where somebody is going to come along and say, “Thanks guys, you really cleaned up these assets. We’ll take it from here.”

TER: Among the micro-cap stocks on a list I saw recently, Miller is listed as fourth in terms of return on assets over the last 12 months. Obviously, they’re getting a lot out of those assets already. But what about their being in Alaska?

AM: While Alaska may be maturing, I still would characterize Alaska as a bigger company kind of play. I think that Miller pulled off a small miracle, but to develop everything that’s there is going to take really, really deep pockets. I think there will be a point where somebody with a lower cost of capital than Miller is going to buy it. I don’t know if that’s in two years or six years, but I think that is the ultimate exit strategy.

TER: All right, so buy and hold Miller Petroleum. What are some other E&P plays that you’re excited about?

AM: Domestically there’s a smaller company that we like called EnerJex Resources Inc. (OTCBB:ENRJ).

We made a decision about four years ago that we thought oil was a better commodity to invest in versus gas. If we could find oil in proven, safe locations, then that was the place to go and bet that technology could make it work. So we like Canadian production. We like U.S. production. EnerJex operates only in eastern Kansas, which is maybe not recognized as a leading hydrocarbon region. But Kansas is among the top eight oil-producing states. The thing about eastern Kansas is that it’s older production, so ownership is very fragmented. I think there’s something like 10,000 different operators in Kansas with the majority producing 50-80 bpd.

EnerJex basically said: “We’re going to acquire those mom-and-pop shops and aggregate them.” Most of these operations are so small that they aren’t water flooding. They aren’t down spacing. They aren’t using artificial lift; they aren’t using any kind of horizontal-drilling technology. Enerjex believes that they can apply these technologies and take production from their current 200 or 300 bpd to 3,000, 4,000, 5,000 bpd over the course of four or five years. At that point they become a nice target for somebody.

There’s very little exploration risk. It’s more of a manufacturing process because we know the oil reserves are there. It’s just a question of getting them out economically by achieving economies of scale.

TER: But that premise depends largely on the acquisition costs. And how is the company going to afford to buy many of these assets? They’re going to have to dilute their equity, and that reduces value.

AM: They can use bank credit pretty effectively because there’s very little risk. They’re good assets to leverage. They have also found that so many of these assets have been neglected that in many cases the producers are also the landowners. It might have been a farmer that drilled two or three wells just because that’s what everybody was doing 20 years ago. EnerJex has had some instances where people are willing to give them the well leases on the condition that they will go and drill it out because the royalty revenue would be greater to that landowner than what they’re getting currently. I think that if they can maintain a certain pace of activity, then that starts to create the traction. In 2007 and 2008, they took about $9 million of capital and turned it into $40 million of proven value.

TER: It’s certainly an interesting business model. But what about exploration drilling costs?

AM: Their biggest issue isn’t the exploration risk. The biggest sensitivity in the company is operational leverage. Right now they’re producing 200 or 220 bpd. Their fixed costs associated with that don’t really change if oil prices go down. Could they produce 400 or 500 bpd without really changing their cost structure? They probably could. But they have tended to be very sensitive to commodity prices. When oil prices went down in late 2008, it really hurt them. But if they can add mass, then their operating margins will improve and their sensitivity to commodity prices will decline.

TER: Alex, you talked earlier about the global market for oil. Are there some companies that C. K. Cooper likes that are not based primarily in the United States?

AM: Yes, there are, although we try to shy away from political risk. We think that’s a risk that cannot be quantified or that you can’t factor into a model.

TER: Well, you can use a steeper discount.

AM: Yes, but how do you discount what Hugo Chavez might do in Venezuela next month? We’re basically looking for plays in what we believe are politically stable regions with strong markets. One company that we like is a natural gas player called FX Energy Inc. (NASDAQ:FXEN). They are focused on natural gas production in Poland.

Poland normally imports the bulk of its gas from Russia. And as we’ve seen over the last couple of years, gas can become more of a point of leverage if the Russian government chooses to utilize it. That means there’s a ton of pressure in Europe, and in Poland in particular, to develop alternative supplies of natural gas. It’s not that Poland doesn’t have the reserves, it’s that they’re just underdeveloped. We think that FX got in early. They have a huge land position there. It is one of these plays where they have so much land under lease that anything else positive that happens in Poland indirectly benefits them.

FX has gone from the incubation stage to a program of steady drilling. They’re starting to become more of a production and development company. We think that if Eastern Europe experiences a really cold winter, they could become a very attractive takeover target.

TER: Possibly by Russian company?

AM: I doubt the Poles would support that. Their partner is the Polish National Oil Company, so I’m sure they would have some say in that.

But you’re seeing a lot of transactions that are effectively technology transfers. A lot of companies in Europe are trying to bring U.S. and Canadian drilling and completion technologies to apply on their unconventional plays. I think that as that starts to gain traction, people will look for low hanging fruit, companies with proven assets and a decent reputation. I think FX fits the bill.

TER: Moving over to natural gas, the U.S. Department of Energy expects total natural gas consumption to increase 4% this year. That means an extra 65 billion cubic feet of gas per day. And the CEO of one of the majors, Royal Dutch Shell Plc (NYSE:RDS.A), recently said that Shell will be more gas than oil by 2012. What’s that telling us about the natural gas market, and should investors be taking long-term positions there?

AM: We think that natural gas is the fuel of the future for the United States. You can’t look at the abundance of it, the infrastructure that’s generally in place and reach any other conclusion. I think in the long term, you absolutely need to have a position in natural gas. The problem is that there’s been such an advancement in technology in developing gas out of unconventional plays that there’s an oversupply of gas in the market. And there probably will be for the next 12 or 18 months. While we favor oil in the short term, we believe that you can selectively add natural gas companies to your portfolio and you’ll do well. But in the meantime, there’s going to be a rough period as the market adjusts to the new supplies.

TER: Are there some predominantly natural gas plays that our readers might be interested in?

AM: We really don’t have any that are at the top of our list. We like particular plays. We think that the Eagle Ford Shale is going to make sense. The Marcellus obviously is going to make sense. There are a lot of companies that are positioned there, but there’s nobody near the top of our recommendation list that is really gas focused.

TER: But are you recommending that investors should be cautious when it comes to plays in the Marcellus, given that there’s a moratorium on fracking in New York and there’s growing concern about a similar ban in Pennsylvania?

AM: Yes, absolutely. But I think that in the long term, economic necessity is going to outweigh those issues and technology will continue to improve.

A lot of gas development, in my opinion, is about a land grab. I mentioned that none of the companies near the top of our list are focused on gas. That doesn’t mean they don’t have gas or don’t have exposure to gas. They’re just not putting a lot of money into it.

If you’ve got companies that have large acreage positions in places like the Marcellus, but aren’t being forced to drill it to defend those acreage positions, it’s like having a long-term annuity. Those positions are going to be worth something in the future.

TER: But we will likely see some consolidation because companies may have to take writedowns on those acreages, and that will result in shrinking share prices.

AM: Well, it either makes them targets or it drives them to go out and acquire assets elsewhere where they can do something over the next two or three years. I think that a lot of companies that maybe made a push into the Haynesville or the Marcellus have their acreage positions and can manage that land. The question becomes: Where can I go and buy something that I can sell to the Street for the next two or three years? To us, the opportunity lies in these more proven oil basins.

TER: Are there some companies that have sizeable positions in the big shale plays that are looking to diversify?

AM: I think a good example is Goodrich Petroleum Corp. (NYSE:GDP). They spent a lot of money to push into the Haynesville in northern Louisiana and eastern Texas over the last couple of years. I think they kind of realized: “Hey, this isn’t bad stuff, but we don’t want to have all of our eggs in this one basket.” Now you’ve seen them go out and start moving aggressively into the Eagle Ford Shale, which has a lot more oil in it.

Another company you can look at is EXCO Resources Inc. (NYSE:EXCO). They aren’t abandoning their gas plays, but they’re trying to diversify their asset portfolio either through acquisitions or JVs. If they fail, then they will likely become targets.

TER: Do you have some parting thoughts on the sector today?

AM: Well, we would say that technology is the key. With lots of plays, when capital is relatively tough to come by, you want to be able to manage your capital budget. Most of the time, that means long-term lease positions-acreage held by production. If you have that, you can wait. . .let technology develop. Let guys with deeper pockets develop new completion or fracking techniques. You basically benefit through serendipity. Those are the companies we target.

TER: Alexander, this has been great. Thanks.

Original Article

We are the leaders of the Governors’ Wind Energy Coalition, a bipartisan group representing citizens across the nation. We convened to address some of America’s most pressing needs — job creation, secure energy supplies and cost-effective carbon emissions reductions.

Governors from California and Oregon to Minnesota and Maine agree that among the best ways to address these issues is to harness the economic and environmental benefits of domestic renewable electricity production. The way to do that is by passing a strong Renewable Electricity Standard — to ensure rapid growth of the nation’s wind and other renewable electricity sources.

We are today sending a letter to Senate leadership, urging the prompt adoption of a strong national RES.

A strong RES must be the cornerstone of our nation’s new clean energy economy. It won’t mean just wind farms in Iowa or off the coast of Rhode Island — though it would expand job opportunities in both our states. The RES remains the most economically efficient way to create opportunity all over the country and throughout the supply-chain in energy manufacturing; new project construction and associated transmission, and continuing operation and maintenance of these facilities.

We all agree that creating jobs must be a national priority. We have reached a crucial moment in the renewable energy race. We are not likely to realize the job-creating potential of these technologies unless Congress passes legislation setting a robust minimum standard for the use of renewable electricity.

More than one-half the states have passed — and proven the value of — a state-level RES. A federal renewable electricity standard could build on these examples, while giving states flexibility to set higher goals.

This federal framework would also spread the economic benefits of wind power to states in the South, which do not have sufficient wind resources, but are part of the manufacturing supply chain for the domestic wind power industry. A strong national RES would increase wind power in the South by 474 percent, according to a recent study by Duke University and Georgia Tech (“Renewable Energy in the South,” July 2010), and could lower electricity bills in Southern Atlantic coastal states. These are opportunities we cannot afford to leave on the table.

Europe, China, India and other countries are far ahead of the United States in terms of capturing the economic benefits of wind and other renewables — despite the fact that America has some of the world’s richest wind resources. The reason is simple: We lack a strategic, long-term policy with a bold yet practical RES requirement as its centerpiece. Such a policy creates the certainty needed by renewable energy investors, developers and manufacturers to deploy necessary resources here at home.

While other countries race ahead, U.S. energy policy has left Americans exposed to volatile prices and limited clean options. That is why we need legislation this year.

We have the opportunity in coming weeks to move forward on legislation that includes an intelligent RES framework, which builds on the good work states have already achieved and helps develop a clean energy infrastructure that serves the nation’s economic and environmental goals.

The economic stakes are high for our states, and there is a very narrow window of opportunity for Congress to act. But we know, by working together and embracing this opportunity for bipartisanship, we can successfully address this challenge.

Original Article

According to research conducted by the accounting firm Ernst & Young, China has supplanted the United States as the most attractive destination for investment in renewable energy.

Both nations were tied for the lead after the first quarter of 2010, however, China had a massive second-quarter enabling them to vault ahead.  Ernst & Young’s report shows that China attracted US$11.5 billion in asset-financing for clean energy technologies in the second quarter; this is more than the combined investment in Europe and the United States.

China is the world’s largest energy consumer, and has begun to aggressively pursue renewable energy technologies.  The country has set a goal of receiving 15% of its electricity from renewable sources by 2020.  On the other hand, political disparity in the United States has hindered the passage of new energy policy, which has in turn stifled the growth of the country’s renewable energy industries.

Ben Warren, Ernst & Young’s environment and energy infrastructure advisory leader, said, “China has all the benefits of capital, government will, and it’s a massive market.  We would expect to see China retaining a dominant position.”  Meanwhile Marc Bachman, an analyst at Auriga USA commented, “In the U.S., it’s almost impossible to get 50 states to agree on renewable energy policy and it’s likely to be so watered down as to be ineffective.”

Original Article

Industry is working on safety of drilling

Today in Houston, the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) will host the sixth of eight public forums designed to collect information from experts in the field of deep-water drilling. As the chairmen of joint industry task forces designed to study various aspects of this critical issue, we welcome these forums and the opportunity to share what we have learned since the Deepwater Horizon incident, and what we have done to improve our industry’s performance.

Our industry is cooperating fully with BOEMRE and the independent presidential commission as they consider the spill and potential changes in industry oversight. The oil and natural gas industry has created four industrywide task forces to identify and learn from any gaps in operations or practices that would affect safety; seek options to address gaps through recommended practices, procedures and research and development; and ultimately further improve the industry’s capabilities in safety, environmental performance and spill prevention and response.

Industry has already taken steps to further improve safety, and at today’s BOEMRE hearing, we will deliver the preliminary findings of two task forces: a Subsea Well Control and Containment Task Force, which is reviewing technologies and practices for controlling the release of oil from its source, and an Oil Spill Response Task Force, which is reviewing existing spill-response processes and technologies.

The Subsea Well Control and Containment Task Force identified five key areas of focus for Gulf of Mexico deep-water operations. In addition, we developed 29 recommendations on specific steps to enhance the industry’s well control and containment capability, including 15 “immediate action” items. Finally, we have worked to ensure that the technology, equipment and procedures that were used successfully to contain the Macondo well are being made available to all of industry in the unlikely event of another incident.

The second task force on Oil Spill Response has assessed the industry’s entire spill response system and identified areas for improvement. We examined a number of broad issues — from oil spill response plans and recovery capabilities to shoreline protection and clean-up — and determined opportunities for improvement and how they might be implemented. In particular, we made specific suggestions to assist in increasing the speed with which a spill response can be ramped up, enhance spill response plan content and structure, clarify the role of federal and state regulatory agencies, improve industry training and exercises for large spill events, provide for a better understanding on the use of dispersants and in-situ burn techniques, and the identification and implementation of new technology on spill response. In the end, we developed recommendations for 15 near-term actions and a number of long-term actions.

It is industry’s intent to begin discussions with other stakeholders on these recommendations as soon as possible. While industry has already taken steps to address many of these issues, it will be important for government and other stakeholders to work together to identify priorities for future improvements and develop necessary cooperative mechanisms. The ideas presented by our task forces are offered as a first step in that process.

Our work on subsea containment and spill response capabilities was preceded by the industry’s first two task forces, which were formed immediately after the Deepwater Horizon incident. Those two task forces addressed offshore equipment and operating procedures, bringing together dozens of the brightest minds in the industry to identify and further reduce risks of offshore operations. Recommendations from these task forces were submitted to the Department of the Interior (DOI) in May and incorporated into a DOI report on increased safety measures delivered to President Obama.

Recommendations from all four task forces already have helped improve the industry’s safety and operations standards. This is vital, since offshore drilling in the Gulf of Mexico plays a critical role in meeting America’s demand for energy. Approximately 30 percent of the nation’s total domestic oil production and 13 percent of domestic natural gas production come from the Gulf, and approximately 80 percent of the oil and 45 percent of the natural gas in the Gulf come from deepwater exploration.

In the last 60 years, our industry has safely drilled more than 42,000 wells, including 2,000 deepwater wells, in the Gulf without a major incident. In addition to providing our country with the energy it needs, these activities have helped support more than 9 million American jobs and $1 trillion in economic contributions to the nation’s economy. The recommendations from these task forces, combined with the continued cooperation of government agencies and other stakeholders, should help ensure a similarly strong record of industry performance and economic growth for the next 60 years and beyond.

Original Article

HOUSTON, Aug. 26 — Pressure pumping capacity in North America, crucial to activity in burgeoning unconventional oil and gas plays, is set to increase by 40-45% through the end of next year, says Simmons & Co. International.

In a research note, the investment bank said it expects further drilling increases, pushed by additions to the land rig fleet, to help absorb the new capacity—but not enough to keep the utilization rate from slipping.

Simmons estimates North American pressure pumping capacity at 7.2 million hp, of which 6.2 million hp is in the US, excluding the Gulf of Mexico, and the rest in Canada.

The firm notes that disclosures vary among companies and that horsepower totals include some capacity not related to the hydraulic fracturing essential to completion of horizontal wells in shales and tight sands. And it believes some companies quote brake rather than hydraulic horsepower, which would further overstate total capacity.

“Our guess—and we emphasize the word ‘guess’—is that roughly 400,000 hp in our 6.2 million US industry horsepower tally is not truly frac horsepower that could be used for today’s horizontal fracs,” Simmons says.

It says pressure pumping service providers report they are “effectively sold out” and have waiting lists extending well into this year’s fourth quarter. In some regions, it adds, operators are trying to schedule frac dates in the first quarter of 2011.

At present, the Haynesville shale gas play of Louisiana is the largest pressure pumping market. But the Bakken oil shale play in the Williston basin and Eagle Ford gas and oil play in South Texas, where rig counts are rising, might eclipse the Haynesville later next year, Simmons says.

The firm estimates current utilization of pressure pumping capacity in the US at 92%. By the end of 2011, the utilization rate might slip to 81%, it says.

It bases its capacity utilization projection on assumptions of a net increase in horizontal drilling rigs of 110 with activity increasing in the Eagle Ford, Marcellus, Bakken, and Permian plays and declining in the Haynesville, Cotton Valley, Fayetteville, and Bakken; an increase in average frac stages per well in the Eagle Ford and Bakken; a 3% improvement in drilling efficiency across all basins; and an increase of 2.7 hydraulic hp in the US pressure pumping market.

“We also assume that by the end of 2011 effective market capacity will be more heavily impacted by the wear and tear on the industry fleet as we assume that on any given day nearly 9% of the fleet is down for maintenance and/or overhaul,” the firm says.

An adjustment to the expected slippage in the utilization might be a return to 12-hr work days from the 24-hr days to which service providers have moved in some areas.

Original Article

Wojciech Moskwa

OSLO, June 1 (Reuters) – Norwegian seismic surveyor TGS-Nopec (TGS.OL) said demand for its seabed scans would probably rise as tougher drilling rules are implemented in the wake of BP’s (BP.L) oil spill in the Gulf of Mexico.

Seismic scans help oil producers have a better understanding of risks by mapping out the best locations to drill for oil and gas as well as monitoring reservoirs during production.

TGS said it was maintaining its guidance for 2010 despite the fallout from the Gulf of Mexico spill, which is slamming the brakes on the fast developing deep-water drilling industry.

U.S. President Barack Obama called a six-month moratorium on drilling in the Gulf of Mexico last week and some analysts expect that pause to remain in place even longer.

“Assuming that drilling activity will continue in deep-water Gulf of Mexico, it’s hard to imagine oil companies not needing that type of information even more going forward,” Chief Executive Robert Hobbs told investors and analysts on a conference call about the impact of the Gulf of Mexico spill on the company.

“Drilling, as it is now, is still a very expensive venture in waters that are this deep…and that’s why our products are so popular right now,” Hobbs said.

“It’s a type of product that really helps them understand risk and understand their likelihood of encountering hydrocarbons or drilling a dry hole.”

TGS shares closed down 3.0 percent at 85.5 crowns while peer Petroleum Geo-Services (PGS.OL) was off 4.1 percent on another poor day for a number of oil services stocks.

Hobbs said the drilling moratorium was “not positive” as it interfered with TGS’ customers exploration plans but it would not have material impact on its business if it remained intact for some six to nine months.

MEXICO GULF SALE KEY

The CEO said much hinged on whether U.S. authorities would go ahead with the planned sale of offshore acreage in the central part of the Gulf of Mexico — the region most affected by the spill — which was expected roughly around March 2011.

The licensing round for another part of the Gulf, which was set for August, has been cancelled, he said.

TGS said its Justice scanning project in the vicinity of the BP spill would be delayed only by about a month to late July or early August due the pollution and clean up efforts. He said a number of seismic groups also had limited downtime due to the accident.

“There has been a significant amount of vessel capacity that has been put … in the Gulf of Mexico, (but) some of the projects our competitors were doing were finishing up anyway, regardless of the accident,” he said.

Hobbs said seismic data purchased by customers was typically used for wells drilled some two to five years later — highlighting the long lead times that TGS bets will protect the seismic industry as long as deep-water drilling resumes sometime this year.

He said that even with mounting political pressure to keep offshore drilling to a minimum, the United States had too much to lose by cutting off exploration in the deep-water Gulf of Mexico.

“If the U.S. does not continue exploration in the Gulf of Mexico it will be shutting down a key oil contributor for their nation,” Hobbs said. “We still see interest in buying data from this area (by clients).” (Editing by Karen Foster)

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