American Oil and Gas Reporter - March 2016 - 98

next 30 years.
"All this plays really well for Louisiana,"
he assessed. "If you look at North American
natural gas supply versus the rest of the
world, the United States will be oversupplied and Europe will be way undersupplied. Even more importantly, the AsiaPacific market will be vastly undersupplied."
Louisiana has a great natural gas upstream and midstream infrastructure,
Marko praised, saying more than 40
plants using gas or natural gas liquids
were in various stages of development,
as were LNG export terminals. Marko
said gas had significant demand growth
potential, forecasting 10 Bcf/d needed
for LNG exports, as well as 5 Bcf/d of
new consumption to manufacturing with
another 5 Bcf/d more from electric generating stations and the gradual growth
of natural gas vehicles.
"Altogether, that could be another 20
Bcf/d of new demand, not including any
U.S. economic growth," he said. "No
matter what is happening with U.S. markets, it still is a bright spot of the world.
Money always will flow here. People
think about other emerging areas, but a
lot of those have gone bust. Some places,
such as China, have seen corrections
from unreasonably high growth. The United States has its ups and downs in the
near term, but it is trudging along for the
long term."
Capital Markets
According to Marko, spending on domestic exploration dropped 50 percent

Bernadette Johnson, director of research and analytics at Ponderosa Advisors LLC, tells the Louisiana Oil & Gas
Association that while U.S. market drivers are working, as evidenced by declining rig counts and production rates, the
picture globally is not as positive. The
result is that the world's oversupply situation will take a while to erase.

98 THE AMERICAN OIL & GAS REPORTER

from 2014 to 2015, and will be down
again this year. Operators must live off
cash flow and other liquidity, he advised,
adding that several choices for liquidity
remain: public markets, operating cash
flow, private capital, or asset sales.
The U.S. mergers and acquisition markets were down by a third in 2015, but
he predicted renewed interest this year.
"People have to sell. The challenge will
be (the presence of) 100 others selling. If
you are looking (to buy), the challenge
will be finding quality stuff," Marko assessed.
There is more than $125 billion in
private capital looking for investment opportunities, including money held in
private equity funds or funds that specialize
in oil and gas companies, as well as new
funding sources in sovereign wealth or
family funds, endowments and hedge
funds, Marko said. He added that savvy
investors were taking a 10- or 20-year
view that sought companies with good
assets and quality management teams.
Marko said he would not be surprised
if the embedded decline rate in shale
wells, which he estimated at 60-70 percent,
suddenly became a significant factor.
"If you stop drilling, even if you are
drilling a lot more efficient wells, you
may catch speed on the decline and we
may wake up one day and be at 8 MMbbl/d
instead of 9 MMbbl/d. Everyone's hair
will be on fire, and oil will go up to $50$60 a barrel," he offered.
Market Recovery
Even if the U.S. oil surplus ends soon,
the world's oversupply will take much
longer to erase, Ponderosa's Johnson projected. She predicted domestic crude production would decline slightly in 2016.
Unlike other oil-producing countries, the
United States is responding to market
signals, she observed, while Russia and
Saudi Arabia are increasing oil output.
"We are going to see declines, but a
lot of that is going to be offset by growth
offshore," Johnson said. "The U.S. offshore
grew by 200,000 barrels a day last year.
If it had not, we would have seen a
decline in 2015. We will see some offshore
growth this year, with at least five key
projects coming on line. We will see
some additional growth in the offshore
in 2017, and that is mitigating some of
the declines in onshore unconventional
plays."
The world now produces 97 MMbbl/d
of crude and other petroleum products,
overwhelming the 95 MMbbl/d of demand,
Johnson said. "In percentage terms, the
U.S. natural gas market has been longer
than that for many years, and probably is
longer than that today," she assessed.

Mark K. Miller, chairman of the Independent Petroleum Association of
America, recommends to the Louisiana
Oil & Gas Association's annual convention that the oil and gas industry needs
to secure its next generation of scientists and service company personnel.

"This is not something that cannot be
corrected. The hard part is we really have
not started yet. We are not looking at a
recovery tomorrow or next month; it will
take longer. We believe we will not see
$60 prices until 2018."
Oil prices should climb from $32 to
$46 a barrel by the fourth quarter of this
year, Johnson predicted, based on expectations that global spare capacity will decline. Russia, Iraq and Saudi Arabia are
unlikely to repeat their 2015 production
growth, and conventional wells' natural
5 percent decline will trim production
further, she added. In 2017, oil prices
should hit $52 a barrel, and beyond 2016,
Johnson said, analysts expect a long-term
equilibrium price of $67 a barrel.
Friendly State
Gregory Robbins reported that his
company saw many benefits to working
in Louisiana's business-friendly operating
environment. "Memorial Resources tried
to drill multiunit horizontal wells on the
Texas side of the border, and the challenges
we faced there were tremendous, relative
to what they are in Louisiana. These
days, it takes long laterals to make drilling
work. It is a responsible thing to do from
surface standards and it is the best use of
capital," he praised.
Louisiana is the better oil and gas
state because its regulatory environment
protects the landowner, yet allows operators to utilize technology, Robbins asserted.
Stronger natural gas prices would help
future Haynesville development, but Robbins said supply growth still outpaced

American Oil and Gas Reporter - March 2016

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