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In recent months, pipeline capacity shortage in the Permian has been the center of shale drillers and oil analysts’ attention as much as the surging production from this fastest-growing U.S. oil region that has helped total American crude oil production to exceed 11 million bpd for the first time ever.
Many of the big U.S. companies – including supermajors Exxon and Chevron – boosted their Permian oil production in the third quarter as they have firm capacity commitments and integrate Permian production with downstream operations.
Many smaller drillers, however, are going on a ‘frac holiday’—as Carrizo Oil & Gas said in its Q3 earnings release this week—in some of their Permian acreage by the end of this year, to sit out the worst of the pipeline constraints, and to be ready to return to completions next year.
The majority of company executives and industry analysts expect that the Permian bottlenecks and the wide WTI Midland to Cushing price differential are transitory issues that will go away by the end of 2019, when many of the new pipelines out of the Permian will have started operations.
Until then, some smaller drillers like Carrizo are on a ‘frac holiday’ this month and next. Commenting on the Q3 performance, Carrizo’s President and CEO S.P. “Chip†Johnson said that the company had been drilling more in the Eagle Ford than in the Permian in order to capture higher pricing from the Eagle Ford oil.
“We expect our activity to remain weighted to the Eagle Ford Shale until the second half of 2019, when we plan to begin moving rigs back to the Delaware Basin,â€Â Johnson said. In the earnings call, he noted that the shift to the Eagle Ford “shielded us from the dramatic widening of differentials in the Permian Basin during the quarter.â€
The Permian oil differentials are less of an issue for the bigger companies. Pioneer Natural Resources increased Q3 Permian production by 5 percent over Q2, benefiting from firm transportation contracts that helped it deliver 165,000 bpd of Permian oil to the Gulf Coast. Pioneer is also boosting firm transportation capacity to the Gulf Coast to 185,000 bpd this month. “Effective September 2018, Pioneer has no exposure to Midland oil pricing through 2020,†the company said this week.
Diamondback Energy has doubled its volume commitment to 100,000 bpd to the Gray Oak Pipeline expected to be in service by the end of 2019. Diamondback now has a total of 200,000 bpd volume commitment to new pipelines, including Gray Oak and EPIC Crude Oil Pipeline, it said in the Q3 earnings statement.
Most oil and gas firms expect the bottlenecks to have eased by the end of next year, according to the Third Quarter 2018 Dallas Fed Energy Survey. More than half, or 56 percent, of the 168 oil and gas executives surveyed in September 12–20 expect that new crude oil pipeline capacity will be enough to ease the current constraints by the end of next year. The other 44 percent see new capacity sufficient to ease the bottlenecks in 2020 or later. The most frequent response—selected by 27 percent of executives—was the fourth quarter of 2019, the second most frequent response was Q3 2019 and the third most frequent was Q1 2020.
A total of 70 percent of executives surveyed expect the oil price differentials between WTI Midland and Cushing to have a slightly negative impact on oil production growth in the Permian over the next six months. That’s compared to 17 percent who see significantly negative impacts, and 12 percent expect no impact.
Jeff Miller, CEO at Halliburton, the leading fracking services provider in the United States, said last month that the current softening of demand in North America – a combination of off take capacity constraints and customers’ budget exhaustion – is a temporary issue. Permian constraints will be overcome by the end next year, Miller told Bloomberg TV earlier this week.
Shale pioneer Mark Papa, currently chairman and CEO at Delaware Basin-focused Centennial Resource Development, also sees pipeline constraints overcome by the end of 2019, but warned that constraints in the longer term could be coming with shortage of workers.
“Some of the other issues like personnel and water handling issues are some of the more long term issues,â€Â Papa has recently told Bloomberg.
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Valaris Limited announced new contracts awarded subsequent to issuing the Company’s most recent fleet status report on February 21, 2023. Three-year contract with Petrobras for drillship VALARIS DS-8. The rig will be reactivated for this contract. The total contract value is approximately $500 million, including a $30 million mobilization fee. 100-day contract with a TotalEnergies affiliate for drillship VALARIS DS-12. The contract is expected to commence in second quarter 2023. 70-day contract with Beach Energy offshore New Zealand for heavy duty modern jackup VALARIS 107. The contract is expected to commence in third quarter 2023. The total contract value is approximately $26 million. President and Chief Executive Officer Anton Dibowitz said, “We are particularly pleased to have secured the award for preservation stacked drillship VALARIS DS-8, for a contract that is expected to generate a meaningful return over the firm contract term, and we remain focused on exercising our operational leverage in a disciplined manner. This most recent award represents the sixth contract awarded to one of our high-quality stacked floaters since mid-2021, and speaks volumes about our demonstrated track record of project execution when reactivating rigs.” Dibowitz added, “Following the reactivation of VALARIS DS-17 and DS-8, we will have ten floaters working across the golden triangle, including four drillships in Brazil, a market where we expect to see continued growth over the next several years.” Updated Guidance As a result of the contract awarded to VALARIS DS-8, which will require the rig to be reactivated from preservation stack, we are updating our first quarter 2023 and full-year 2023 guidance provided on our fourth quarter 2022 conference call on February 21, 2023. First Quarter 2023 Contract drilling expense is expected to increase by approximately $5 million to $385 million to $395 million. Adjusted EBITDA is expected to decrease by approximately $5 million to negative $5 million to breakeven. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $25 million to $30 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Full-Year 2023 Revenues are anticipated to be $1.8 billion to $1.9 billion, unchanged from the guidance provided on our fourth quarter 2022 conference call. Contract drilling expense is expected to increase by approximately $60 million to $1.49 billion to $1.59 billion. Adjusted EBITDA is expected to decrease by approximately $60 million to $180 million to $220 million. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $280 million to $320 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Capital expenditures are expected to increase by $60 million to $320 million to $360 million. Source: Valaris Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Seadrill Limited announced that the West Neptune has executed approximately six months of term extensions with LLOG Exploration Offshore, L.L.C in the US Gulf of Mexico. The extensions will commence in direct continuation of the existing term, and will keep the rig busy until Q3 2024, furthering Seadrill and LLOG’s long-term association. Total contract value for the extension is approximately $79 million. Source: Seadrill Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Semisub rig owner Dolphin Drilling has inked a new contract with Peak Petroleum in Nigeria for its 1974-built Blackford Dolphin. The firm contract, which follows the letter of award in January, gives the Euronext Growth-listed owner of three rigs the potential to extend the unit’s backlog by a minimum of 120 days and up to 485 days. The deal adds to and will be a direct continuation of the previously announced 12-month contract with General Hydrocarbon Limited (GHL). Øystein Stray Spetalen-backed company said the effective dayrate associated with the minimum firm period of the contract is $325,000, including the mobilisation fee. “The final award of the contract for Blackford Dolphin shows the opportunities in Nigeria at a strong dayrate, in addition to building on the backlog for the rig. It also underlines the attractiveness of our assets, and we look forward to returning to revenue-generating operations in 2023,” noted Bjørnar Iversen, CEO of Dolphin Drilling. Source: Dolphin Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
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