The image below is an interesting follow up to the last several weeks’ discussion on the nature of US (and to a lesser extent Canadian) tight oil and natural gas economics.

Sourced from Schlumberger, It shows the number of wells drilled in the big three “10+ million barrel per day” producers for the year ended December 31, 2014, which is somewhat indicative of the level of activity required to sustain (never mind grow) production in those areas.

The message here is that to maintain productive equivalency with Russia and Saudi Arabia, the US drillers will have to invest exponentially more in high decline, relatively lower production wells and that if, as expected, capital becomes tighter for these players, no amount of efficiency will allow them to continue to match the productive potential of the other two. This is not to say that activity and innovation will not continue in the American market, but it is worth considering in the context of what is happening globally. While the commodity produced out of them is for the most part fungible, the process to get at it isn’t.

Prices as at June 12, 2015 (June 5, 2015)

• WTI Crude: $59.97 ($59.13)
• Nymex Gas: $2.775 ($2.587)
• US/Canadian Dollar: $0.8125 ($ 0.8040)

Highlights

• The price of oil slid early in the week before rallying late in the week.
  • Storage declined more than expected
  • Production increased marginally during the week but news reports and energy agency forecasts increasingly point to upcoming production declines
  • The rig count continued to fall
• Natural gas was choppy during the week but rallied on the basis of increasing electrical generation demand.
• As of June 5, 2015, US natural gas in storage was 2344 billion cubic feet (Bcf), which is 1.9% above the 5-year average and about 47.3% higher than last year’s level, following an implied net injection of 111 Bcf during the report week. Overall U.S. gas consumption increased by 3.1% this week, with large increases in power-sector demand offsetting continued declines in other sectors.
• As at June 5, 2015, US Crude oil supplies were at 470.6 million barrels, a decrease of 6.8 million barrels from the previous week and 80.7 million barrels ahead of last year.
• The number of days oil supply in storage was 28.7, ahead of last year’s 24.4.
• Production increased to 9.610 million barrels per day from 9.586, with the increase coming from the lower 48
• Oil rig count was down to 635 from 642 the week prior, the lowest since August 2010
• Natural gas rigs drilling in the United States decreased this past week to 221 from 222.
• As of June 8, the Canadian rig count was up to 107 (14% utilization) (66 Alberta (13%), 14 BC (17%), 26 Saskatchewan (19%), 1 Manitoba (5%)). Utilization for the same week last year was 31%.

Drillbits

• At a G7 meeting set amongst the flowers, butterflies and reinvigorating alpine air in the German Alps, a communique was released pledging a fossil fuel free world by 2100.
• Trinidad Drilling and CanElson Drilling announced an arrangement agreement to combine their businesses. Under the terms of the deal, each CanElson shareholder can receive either 1.0631 Trinidad shares or $4.90 in cash subject to a maximum aggregate $50 million cash. The combined business will boast a combined 163 land-based drilling rigs. Total transaction value is estimated at $505 million. This is the first of what is expected to be a number of significant energy service transactions
• Pacific Northwest LNG has announced a Final Investment Decision subject to the following two conditions: approval of the Project Development Agreement by the Legislative Assembly of British Columbia; and a positive regulatory decision on Pacific NorthWest LNG’s environmental assessment by the Government of Canada.
• In a related announcement, the Government of Canada announced a decision to accept the National Energy Board’s (NEB) recommendation to approve the North Montney Mainline Pipeline Project, subject to certain conditions. The project will connect Montney and other Western Canadian Sedimentary Basin supply to existing and new natural gas markets including the proposed Pacific NorthWest LNG terminal through its interconnect with Prince Rupert Gas Transmission project.
• Needless to say, the above were perceived as positive developments by TransCanada Pipelines.