Hess Increases 2017 E&P Budget to $2.25 Billion

Hess Corporation has announced it will increase E&P spending for 2017, including adding more Bakken rigs. 

Related: Hess Adds Bakken Rigs

For 2017, Hess plans to spend $2.25 billion for E&P activity, a hefty increase from the $1.9 billion spent in 2016. The company will allocate that money to the following: 

  • $700 million for unconventional shale resources
  • $375 million for production
  • $825 million for developments
  • $350 million for exploration and appraisal activities
  • $425 million of its development budget will be used to drill two wells and complete three wells, install the tension leg platform and progress development of the Stampede Field in the deepwater Gulf of Mexico to achieve first oil in 2018.
We’re excited about the year ahead. With oil prices starting to recover, we will ramp up our Bakken rig count from two currently to six by year end. We plan to resume drilling at the Valhall Field from the existing platform rig and we will continue to progress our two offshore developments to first production, which will add a combined 35,000 boepd once online.
— President and COO Greg Hill

Hess will also add additional rigs in the Bakken and proedicts the region's net production in 2017 is forecast to average between 95,000 and 105,000 boepd.

Fourth Quarter Highlights

Fourth quarter results include a noncash charge of $3.8 billion to “establish valuation allowances against net deferred tax assets as of December 31, 2016, as required under accounting standards following a three-year cumulative loss.”

Read more at hess.com

North Dakota Faces $2 Billion Loss of Revenue

North Dakota lawmakers face a massive loss in revenue as they settle into week two of the 2017 legislative session.

Related: North Dakota's Taxable Sales Down 33%

The North Dakota House and Senate appropriations committees heard proposals last week for the coming two-year budget cycle. Details include:

  • $146 million less in sales and use tax revenue that was included in former Gov. Dalrymple's executive budget from December
  • Almost $3.7 billion in general fund revenues for the 2017-19 biennium (down 34 percent from the more than $5.5 billion projected for the current biennium)
  • $1.1 billion less in general fund revenues than former Gov. Dalrymple's proposal
  • A $67 million reduction in sales and use tax revenues from the December executive forecast
  • Doesn't include a $200 million transfer from the Bank of North Dakota that was included in Dalrymple's budget.
Sales tax is the one that hurts us. The biggest thing we need to take care of in this legislative session, from my standpoint, is making sure that the revenue that we expect we actually get.
— Rep. Jeff Delzer, Chairman of the House Appropriations Committee

 

The forecast assumes an average oil price of $48 per barrel, a more conservative figure than Dalrymple's $52-53.

For the first quarter of 2016, the North Dakota's Tax Commissioner announced a 33 percent drop in taxable sales. Taxable sales and purchases are a key indicator of the economic activity in the North Dakota. This data has followed the pattern of decline that parallels the drop in low crude prices over the last 18 months. 

Bakken Operators Reducing DUCs

Bakken Shale E&P companies are moving forward with DUC reduction programs, according to the North Dakota Industrial Commission. 

Related: Continental to Start Drilling Again

The North Dakota Industrial Commission issued its latest activity report that predicts operators will increase the minimum number of rigs throughout 2017 as long as oil prices remain between $50/barrel and $60/barrel. Highlights of the report include:

  • 73 well completions for September
  • 45 well completions for October
  • 860 wells still waiting on completion
  • Estimated inactive well count is 1,503, down nine from the end of September to the end of October. 
  • There was one significant precipitation event, eight days with wind speeds in excess of 35 mph (too high for completion work), and no days with temperatures below -10F. 
Half of the investment has been made, and these wells are likely to be completed when the economics are right.
— Ron Ness, President: ND Petroleum Council

 

It appears that E&P companies are committing to higher 2017 capital spending. In June, Continental Resources founder and CEO Harold Hamm told Bloomberg that new drilling in the Bakken won't take place until crude prices pass the $60 before mark. But encouraged by the recent increases, the company is now moving forward to complete their backlog of wells that still need to be fracked. 

The Bakken-Three Forks rig count fell by one this week with Baker Hughes reporting 32 rigs running across our coverage area by midday Friday.

Read more at dmr.nd.gov

 

Bakken Operators Look Optimistically to 2017

The Bakken rig count remains stalled, but some major operators in the Bakken Shale Play plan to increase activity in 2017.

Related:  Continental Resources Raises Expectations for remainder of 2016

As the year comes to a close, major Bakken operators are reporting their plans for 2017, with some announcing they will increase spending and drilling activity.

  • Continental Resources plans to work down its inventory of 29 drilled but uncompleted Bakken wells in 2017. The company expects continued low operating costs in the new year with an estimated budget of $1.1 billion. The company has a new completion design that has resulted in a record 30-day initial rates for Continental-operated Bakken wells in 2016.
  • EOG Resources is increasing its crude oil organic production growth outlook through 2020, which includes growth in the Bakken. In addition to the growth illustrated in the outlook, the company continues to evaluate high-quality emerging plays through its ongoing exploration efforts.
  • Enerplus Corp. will increase its North Dakota oil production by 25% in 2017. 70% of the company's $400 million budget will be spent in North Dakota. 
  • ConocoPhillips has seen unexpected production increases and recovery rates from its Bakken operations, which caused the company to speed up their timeline of adding three rigs to the Bakken. The improved characteristics of its Bakken operations pushed the team to secure drilling rigs and pressure pumping crews earlier than its originally scheduled plans for 2017. 
  • John Hess, CEO of Hess Corp. spoke optimistically about the Bakken in the company's third quarter earnings call and indicated they plan more rigs for the Bakken are in the 2017 
Our Bakken team continues to offer excellent operating results and returns in the core of the play that are competitive with the Permian and Eagle Ford. Our high-quality Bakken acreage, industry-leading drilling and completion costs, and advantaged infrastructure position set up our Bakken assets to be a major contributor to the company’s future production and cash flow growth.
— John Hess, CEO of Hess Corp.

The Bakken-Three Forks rig count fell by one this week with Baker Hughes reporting 31 rigs running across our coverage area by midday Friday.

Crude by Rail Will Increase if Pipeline Remains Stalled

As the standoff over the Dakota Access Pipeline drags on, producers will have to use rail to get their product to market.

Related: Protests over Pipeline Spread Across U.S.

Last week, the U.S. Army Corps of Engineers reversed its position and denied Energy Transfer Partners the permit needed to complete the pipeline.

Oil and gas operators were counting on the pipeline's capacity to ship 570,000 barrels a day in 2017.  This latest set-backs means they will be looking to alternatives and many will be forced to rely on rail to ship product.

Controversy over the safety of moving crude by rail has skyrocketed as several high-profile accidents have recently made headlines. This combined with a sharp increase in crude by rail since the start of the oil boom has many concerned.

Decreased volumes and more pipeline construction in 2016 meant there were fewer safety incidents, with only nine reported this year. But this trend may change if major pipelines cannot be completed and operators rely on rail. 

In 2015, the National Transportation Safety Board (NTSB) gave the following recommendations that would require:

  1. All new and existing tank cars used to transport all Class 3 flammable liquids be equipped with thermal protection systems that meet or exceed the thermal performance standards
  2. All new and existing tank cars used to transport all Class 3 flammable liquids be equipped with appropriately sized pressure relief devices that allow the release of pressure under fire conditions and that minimizes the likelihood of energetic thermal ruptures
  3. An aggressive, intermediate progress milestone schedule, such as a 20 percent yearly completion metric over a 5-year implementation period, for the replacement or retrofitting of legacy DOT-111 and CPC-1232 tank cars to appropriate tank car performance standards
  4. Establishment of a publicly available reporting mechanism that reports at least annually

Construction on the pipeline was almost complete when protest erupted in October. Demonstrators are concerned about the environmental impact of the pipeline, including contamination of the Missouri River, which is the primary water source for the Standing Rock Sioux Tribe. Tribal leaders are also upset that the pipeline will disturb sacred burial grounds.

Energy Transfer Partners and Sunoco Logistics Partners own a majority stake in the Dakota Access Pipeline project. Energy Transfer Partners and Sunoco Logistics have lost ~17% and ~27% of their market value since the beginning of the protests. Energy Transfer Equity, which depends on Energy Transfer Equity and Sunoco Logistics for distribution income, fell~15%.