Texas isn’t scared of $30 oil

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Texas has a message for $30 crude doomsayers: Bring it on.

A handful of shale patches in the state, which would be the world’s sixth-largest oil producer if it were a country, are profitable with crude below $30 a barrel, according to an analysis by Bloomberg Intelligence. In the Eagle Ford’s DeWitt County, which produced more than 100,000 barrels a day in November, the average well can be profitable with U.S. benchmark crude at $22.52 a barrel, $4 below the lowest level this year.

“You see a great amount of variability between operators, even in a small geographic area like a county,” she said by phone.

Drive 200 miles southwest to Dimmit County, and drillers need $58 oil. The wide range of break-evens, a term for the price at which a well goes from profitable to unprofitable, illustrates one reason why shale production from exploration and production companies has been more resilient than expected, filling storage tanks in the U.S. to levels not seen in 85 years.

“It may be harder to kill many U.S. E&Ps than analysts originally thought,” Bloomberg Intelligence analyst William Foiles said in the presentation. “The wide range of break-evens undermines efforts to come up with a single threshold for U.S. shale producers.”

Since prices started falling in June 2014, U.S. shale drillers have dodged countless death warrants by cutting costs, experimenting with new techniques and technology and boosting output to keep their wells competitive. West Texas Intermediate crude fell 19 cents to $32.09 a barrel at 8:32 a.m. Thursday on the New York Mercantile Exchange.

SAFE HARBOR STATEMENTS:
Certain statements in this blog post may contain forward-looking information within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. All statements, other than statements of fact, included in this release and other potential future plans and objectives of the company, are forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statement.

 

 

 

Natural Gas Prices Surge on Larger-Than-Expected Inventory Draw

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Natural-gas inventories shrank by 117 billion cubic feet in the week ended Jan. 1

NEW YORK–Natural-gas futures soared Thursday after weekly inventory data showed that stockpiles fell more than expected last week.

Natural-gas inventories shrank by 117 billion cubic feet in the week ended Jan. 1, the U.S. Energy Information Administration said Thursday. Analysts and traders surveyed by The Wall Street Journal had expected the agency to report a 100-bcf withdrawal.

Futures for February delivery extended gains on the news and recently rose 15.1 cents, or 6.7%, to $2.418 a million British thermal unit on the New York Mercantile Exchange, on track for the highest settlement since October.

“Finally we got a real winter scenario,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. “That had been something that was not showing up.”

Inventories remain 15% above five-year average levels for this time of year.

Moderate weather-driven demand and robust production has pushed the natural-gas market into oversupply in recent months. Stockpiles usually start drawing in early winter as more consumers use natural gas for indoor heating, but mild temperatures this winter meant that inventories kept growing until late November.

However, frigid temperatures appeared across much of the U.S. last week, driving stronger demand.

Storage withdrawals could near 200 bcf a week in the next two weeks due to continued cold weather, said Kyle Cooper, an analyst at IAF Advisors in Houston.

“We are entering the historically coldest time of year,” Mr. Cooper said. “We still have high relative inventory levels to deal with, but the underlying balance is actually quite bullish.”

Natural Gas Surges 35% as Warm Weather Leaves Forecasts

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Weather forecasts have repeatedly shown more cold coming to start January

Natural gas prices are soaring again Tuesday as the extremely warm temperatures that sapped demand this month are leaving weather forecasts for early January.

Futures for January delivery recently traded up 13.9 cents, or 6.2%, at $2.367 per million British thermal units on the New York Mercantile Exchange. The market is on pace for a fourth session in the last six with gains larger than 5%.

Natural-gas futures have gained 35% in less than seven trading days since they settled at a 16-year-low on Dec. 17. Tuesday’s gains put gas at its highest point since Nov. 19.

“It took two months but winter is finally here and natural gas futures are moving along with them,” Aaron Calder, analyst at Gelber & Associates

Weather forecasts have repeatedly shown more cold coming to start January. Tuesday’s weather update from Commodity Weather Group LLC in Bethesda, Md., shows no above-normal temperatures across the nation by Jan. 8, adjusting from Monday’s forecast, which still showed some lingering warm weather over nearly the entire East Coast.

Forecasts already show extreme cold in the west for this week and some of that gradually moving east. Many U.S. homes use natural gas for heat, making the winter weather the biggest driver for gas prices.

“People are jumping in on this because they see all the weather out West,” said John Woods, president of JJ Woods Associates and a Nymex trader. “We were too deep into the season to have such depressed prices and discount an entire winter.”

Physical gas for next-day delivery at the Henry Hub in Louisiana last traded at $2.36/mmBtu, compared with Monday’s range of $2.00 to $2.13. Cash prices at the Transco Z6 hub in New York last traded at $1.95/mmBtu, compared with Monday’s range of $1.86 to $2.45.

SAFE HARBOR STATEMENTS:
Certain statements in this blog post may contain forward-looking information within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. All statements, other than statements of fact, included in this release and other potential future plans and objectives of the company, are forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statement.

Too Good to Be True? Unique Tax Aspects of the Oil and Gas Industry

Red-Velvet-Bundt-Cake-5-of-5Would you be excited as an investor if you had the chance to invest a sum of money late in the tax year and yet deduct almost your entire investment as a business expense in the year you invested?

This “have your cake and eat it too” result can be accomplished with the right type of investment and proper planning.

Drilling Costs can be written off against active income in the year they are incurred. Here is how it works:

  • Intangible Drilling Costs: These costs include everything but the actual drilling equipment. Labor, supplies, chemicals, mud, grease and other miscellaneous items necessary for drilling are considered intangible. These expenses generally constitute up to 80% of the total cost of drilling a well and are 100% deductible in the year incurred. For example, if an investor contributed $100,000 to drill a well, and if it were determined that 75% of that cost would be considered intangible, the investor would receive a current year deduction of $75,000. Furthermore, it doesn’t matter whether the well actually produces or even strikes oil. As long as it starts to operate by March 15 of the following year, the deductions are allowed.
  • Tangible Drilling Costs: Tangible costs pertain to the direct cost of the drilling equipment itself, i.e., the drilling rig, motors, tanks, etc. These expenses are also 100% deductible, and will be depreciated over seven years. Therefore, in the example above, the remaining $25,000 could be written off according to a seven-year schedule.
  • Active vs. Passive Income: The tax code specifies that a working interest (as opposed to a royalty interest) in an oil and gas well is not considered to be a passive activity. This means that all net losses are active income incurred in conjunction with well-head production and can be offset against other forms of income, such as wages, interest, capital gains, etc. This is significant because high net worth investors frequently have more passive write offs but higher active income; therefore, many deductions are never utilized. Not so in oil and gas investing.

There are numerous issues to consider before adopting this type of structure that are not addressed here. This article is intended merely to demonstrate that proper planning can make major differences in outcomes when it comes to income taxation of oil and gas operations. For More In Depth information Click Here

 

Natural Gas Exports Could Shift Power in U.S. Energy

Thnatgasforcaste U.S. has a glut of natural gas, and according to free market theory, it should be more effective to start selling more of it overseas than to simply store greater and greater quantities of it domestically. To that end, the U.S. government has approved the export of over 10 billion cubic feet of natural gas, which will start hitting global markets later this year.

For natural gas producers and shippers, those additional customers could mean booming revenues. But for energy markets as a whole, those exports could cause some strange side effects.

1.) Heating prices could spike
Over half of U.S. households use natural gas to heat their homes in the winter, and the boom in production has resulted in huge savings for them. In 2015, the U.S. Energy Information Administration expects lower natural gas prices to result in 10% energy savings for consumers. But those lower prices may not last.

 

In foreign markets, natural gas carries a much higher price than it does domestically, but if exports grow as predicted, prices here could jump.

Early exporter Cheniere Energy (NYSEMKT: LNG), which will start shipping liquid natural gas later this year, is selling millions of BTUs worth of energy per year to countries like France, Portugal, and Japan, where natural gas prices are triple or quadruple what we pay in the U.S. Even at relatively low prices around the world the low cost structure of U.S. natural gas can generate a significant margin for Cheniere.

2.)Electricity prices could rise
One of the things cheap natural gas has done is take market share from coal in the electricity generation industry. That’s where most of the increasing domestic supply has gone. You can see that the amount of electricity from natural gas has more than doubled over the past decade, while electricity from coal has declined more than 20%.

3.)A potentially rapid transition
Even the EIA predicts that the shift from domestic oversupply to heavy natural gas exports could be fast and furious. The chart below shows the agency’s projected range of net U.S. exports.

Us Natural Gas Export Projections

IMAGE: U.S. ENERGY INFORMATION ADMINISTRATION.

It’s possible that by 2020, the country could be exporting 4 trillion cubic feet of natural gas annually — about the same amount we imported less than a decade ago. That could shift the cost structure of energy in the U.S.

Higher natural gas prices would upset the balance in energy
Low-cost natural gas has caused a huge shift in the U.S. energy profile over the past decade; we’re using much more of it to heat our homes and to generate electricity. So if exporting U.S.-produced natural gas globally leads to higher prices at home, it would hit consumers hard, which could, in turn, make competing resources like renewable energy or even coal more competitive.

It’s worth watching what happens to natural gas prices over the next few years. Exports may have a bigger impact than you’d expect on your bottom line.

With natural gas prices high enough overseas to justify shipping billions of Btus per year there will be a big new demand source for U.S. natural gas. That could spark an increase in U.S. natural gas prices, especially if international LNG prices return to where they were in 2014. It may not seem like a big deal if natural gas prices went from near $2 per MMBtu to $3 per MMBtu, but that’s a 50% increase in energy cost that could hit most Americans’ checkbook.

SAFE HARBOR STATEMENTS:
Certain statements in this blog post may contain forward-looking information within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. All statements, other than statements of fact, included in this release and other potential future plans and objectives of the company, are forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statement.

 

Fracking Drives Oil and Gas Reserves to Record Levels

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American oil and natural gas reserves are at their highest levels since 1972, according to a new analysis released by the Institute for Energy Research on Thursday.

Most of the new reserves are due to hydraulic fracturing, or fracking.

“The fact is, we’re not running out of energy, we’re running into it,” IER spokesman Chris Warren told the Daily Caller News Foundation. “Our proved reserves of oil and natural gas are hitting record levels thanks to innovations in hydraulic fracturing and horizontal drilling technologies, which have allowed companies to tap into our vast shale resources.”

“The shale boom has put to bed the idea of ‘peak oil,’” Warren added. “It is also proof that real energy solutions come from American ingenuity rather than subsidies and mandates.”

 

American reserves of crude oil and natural gas have risen for six consecutive years, although the U.S. produced more oil and natural gas than any other country in 2014, according to the EIA.

American oil production in 2014 was 80 percent higher than in 2008. And the United States produced an average of about 9.3 million barrels of crude oil per day in June. These huge increases in production and reserves are directly attributable to exploitation of tight oil formations and shale gas via fracking.
America controls the world’s largest untapped oil reserve, the Green River Formation in Colorado. This formation alone contains up to 3 trillion barrels of untapped oil shale, half of which may be recoverable. That’s five and a half times the proven reserves of Saudi Arabia. This single geologic formation could contain more oil than the rest of the world’s proven reserves combined.

SAFE HARBOR STATEMENTS:
Certain statements in this blog post may contain forward-looking information within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. All statements, other than statements of fact, included in this release and other potential future plans and objectives of the company, are forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statement.

 

Natural Gas Continues To Replace Coal: as ‘Bridge’ Fuel To Lower-Carbon Energy

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It’s a simple fact that electric cars get cleaner when the electricity grids used to power them do.

And, indeed, those grids are growing less dirty each year in the United States.

The amount of U.S. electricity generated from coal has dropped significantly over the past few years–and that fuel has largely been replaced by lower-emission natural gas.

That, along with a drop in electricity demand during the years of the “Great Recession,” is having a positive impact on U.S. grid carbon emissions, according to a new Breakthrough Institute report.

Natural gas is proving attractive to utilities, and could possibly wean them off coal as renewable sources continue to develop.

The study looked at electricity generation in eight regions of the North American Electric Reliability Council between 2007 and 2013.

“Where there was significant growth in natural-gas generation, that growth almost always came at the expense of coal generation.” – Navigant Research

Coal’s share of the electricity-generating load in these areas declined, while other established sources like hydro and nuclear remained mostly stable.

Natural gas accounted for 45 percent of the decline in coal during the period analyzed, with declines in electricity demand relating to the sluggish economy accounting for the remainder, the study says.

While there were increases in electricity generation from renewable sources during the same period, researchers claim they did not significantly impact the use of coal.

Looking at wind generation, they found that areas that saw significant increases also saw declines in nuclear and hydro-electric generation.

For now, natural gas will likely be the green method of choice for electricity generation. It’s already much cheaper than coal, and can take advantage of existing infrastructure.

About $65 billion was spent on interstate pipeline construction over the past 18 years, and this should be enough to handle increased demand, according to a recent Navigant Research blog post.

Natural-gas plants are also more broadly distributed than coal-fired plants, and aren’t reliant on climate or weather conditions like solar or wind farms.

This ability to work within the current grid infrastructure while still cutting emissions makes natural gas a “bridge fuel” to low-carbon energy, according to Navigant.

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