American Oil and Gas Reporter - June 2014 - 165

ConventionCoverage: Texas Alliance of Energy Producers

Texas Looks To Continue
Production Growth
By Dan Holder
WICHITA FALLS, TX.-The oil and
gas industry in Texas led the nation's
producers to three straight years of growth,
and according to Kurt Abraham, indications are the upstream sector is adding a
fourth year to that string.
Leading off the technical session at
the Texas Alliance of Energy Producers'
annual meeting, held April 22-23 at the
Multi-Purpose Events Center in Wichita
Falls, Abraham, executive editor of World
Oil magazine, held out a note of caution
along with the optimism.
"The industry, as a whole, has been in
a very good position over the past couple
years. However, over the past three months,
there has been a growing sense of caution.
This is a cyclical industry and sooner or
later, we expect to see a slowdown," he
said. "This always has been the pattern,
although I personally do not see anything
significant coming. At least not yet."
The U.S. Energy Information Administration three months ago projected the
oil demand/supply balance that then favored the former would shift to a supply
surplus by late 2014, pushing oil prices
down, Abraham said. A key driver is continued increases in domestic shale oil
production that have reduced imports and
diverted as much as 159 million barrels
of crude into international markets, trimming the Brent benchmark.
Abraham projected 2014's average
Brent prices would increase slightly, rising
to $104.88 a barrel, with West Texas Intermediate posting a bigger jump, climbing
to $95.60/bbl, up from January's predictions of $91.50/bbl.
On the natural gas side, he reported
Henry Hub prices rose 35 percent over
the 2013 average, to $4.24 an Mcf in December, with a peak above $6.00 an Mcf
in March as exceptionally cold weather
across the United States stroked residential
heating demand. That increase helped
push the electric power market back to
coal, he said.
"We do see more normal usage trends
returning. Based on those trends, World
Oil now predicts the Henry Hub price

will average $4.25 an Mcf during 2014,"
Abraham said. "Our original number was
$3.95, so we have gone up a fair piece."
If prices stay above $4.00, Abraham
predicted that would be sufficient economic incentive for dry gas operators to
increase production.
Drilling Rates
The strong oil prices of the past three
years have provided U.S. operators with
a sustained incentive to increase production
from liquids-rich shale plays as well as
conventional offshore production in the
Gulf of Mexico, Abraham said. They responded by boosting U.S. crude oil and
condensate output beyond 8 million barrels
a day by the end of 2013, he observed.
During the past three years, producers
have drilled between 43,000 and 47,000
wells, against global well totals of slightly
more than 100,000, he said.
According to an annual survey conducted by Barclay's Capital, the U.S. upstream industry will spend $156 billion
in 2014, an 8.5 percent increase from
2013 levels, Abraham indicated. Barclay's
analysts believe U.S. land activity will
be driven by full-scale development of
shale plays, he added.
Domestic rig counts dropped from a
high of 2,000 in January 2012 to between
1,700 and 1,800 throughout 2013, but
Abraham asserted footage drilled offered
a better barometer of drilling activity.
"U.S. footage has climbed since 2010,
and is approaching 400 million feet. In
all the years I have been looking at these

numbers, which is close to 30, I don't
believe we ever have come close to 400
million before, but we are getting there
now," he offered.
Much of the credit for that increase
goes to horizontal drilling, Abraham said,
with operators taking advantage of everlonger laterals for multiple wells drilled
from single pads.
"We have achieved significant rig efficiencies, and as such, the demand for
rigs has shifted to fewer, more efficient
rigs. Yet, the demand for expendables,
such as drill bits and drilling fluids and
oil country tubular goods, still is going
up," he pointed out.
During the years immediately preceding
2013, U.S. producers concentrated 80
percent of drilling on oil. Now, Abraham
estimated, that proportion is closer to 90
percent, although that could change if
natural gas prices stay above $4.
Looking ahead, Abraham predicted
U.S. producers would drill slightly fewer
than 46,000 wells in 2014, nearly a 4
percent year-on-year jump. But he said
he expected producers to drill 8 percent
more footage this year and exceed 385
million feet.
Quoting research from Spears and Associates Inc., Abraham reported operators
and service companies were expected to
spend $135 billion across all U.S. land
basins in 2014, comparable to expenditures
the past two years.
Directional drilling also projects to
be flat this year, he related, with expectations spending will hit $3.3 billion in

Townes Pressler, left, chairman of the Texas Alliance of
Energy Producers, visits with
petroleum economist Karr
Ingham, center, and Kurt
Abraham, executive editor
of World Oil magazine. Ingham and Abraham were two
speakers during the technical session at the Alliance's
annual meeting, held April
22-23 in Wichita Falls, Tx.

JUNE 2014 165

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