Aug 03, 2020

News From the Oil Patch: Drilling permits way down in 2020

Posted Aug 03, 2020 5:26 PM


Kansas crude prices have seen better days, a fact reflected in all of the other data used as barometers for the industry. Friday's price at CHS in McPherson was up a quarter to close out the month of July at $30.50 per barrel. That's a dollar more than at  the end of June, but more than eighteen dollars behind the prices of a year ago. The average price for the month of July, 2020 was $31 per barrel, about $17 less than a year ago, but beating the June average by about two dollars per barrel.  

The Kansas Corporation Commission reports just 37 new intent-to-drill notices in Kansas during the month of July, compared to 111 in July of last year. Last month's total is an improvement over June, when state regulators posted just 29 new intents. There are two new intents in Stafford County and one in Russell County.

Independent Oil & Gas Service reports the rig count was down to one in eastern Kansas, but was up one to six active drilling rigs in the western half of the state. The national rig count from Baker Hughes was down one oil rig and up one gas rig for a total of 251 active drilling rigs. New Mexico was down two rigs; Texas was up one.

Regulators approved four new drilling permits in Kansas last week, all of them west of Wichita, including one in Stafford County. This year's running count of drilling permits for new locations across the state is 249, which is less than half the total at the end of July last year.

Independent Oil & Gas Service reports just 11 new well-completions in Kansas last week, five of them east of Wichita, and six out west, including one in Russell County. So far this year, producers have completed 575 wells, compared to more than 800 a year ago at this time.

Futures prices on the Nymex started the month of July at nearly $59 per barrel, but ended the month nearly twenty dollars cheaper. By midday Monday the benchmark Nymex contract had gained 94 cents on the day to reach $41.21. London Brent was 77 cents higher at $44.29 per barrel. 

International prices could be headed lower amid widespread reports that the world's largest crude exporter is about to increase production and cut its prices in Asia. Reuters cites industry sources saying Saudi Aramco may cut its September official selling price in Asia. Slow demand recovery amid a second wave of COVID-19 infections has depressed spot prices for Middle Eastern crude, while Asia’s refining margins remain weak. Saudi prices are usually announced around the fifth of the month. They are viewed as a benchmark, setting the price trends for crude produced in Kuwait, Iraq, and Iran, and affecting more than 12 million barrels per day of crude headed for Asia. 

Kansas remains among just 13 states with average gasoline prices below two dollars a gallon. We spotted $1.94 across Great Bend, but right around two dollars in Hays. Filling up your 15-gallon tank will cost you nearly six dollars less than last year at this time. The statewide average is just over $1.97 per gallon. AAA said the national average has remained within a two-penny range for the last month and is now just over $2.18 per gallon. 

U.S. crude production last week increased by 87,000 barrels per day over the week before, but output remains well below last year's record pace. The U.S. Energy Information Administration reported output for the week ending July 24 was nearly 11.15 million barrels per day. That's more than a million barrels per day below the same week a year ago. Crude-oil imports were down more than five million barrels per day. EIA said imports over the last four weeks average 13.6% less than the same period a year ago. U.S. commercial crude inventories dropped by more than ten million barrels, and are currently about 17% above the five-year average.

Texas producer Rosehill Resources said last week it had filed for bankruptcy protection. Rosehill is the latest victim of the crash in oil prices and demand. The move follows similar filings by the state's largest driller and one of its largest service firms in just the last month. So far this year, more than twenty oil firms with more than $50 million in liabilities have filed for bankruptcy protection.

The Lone Star State lost more than 39,000 oil and gas industry jobs during the first six months of 2020. That's according to the mid-year report from the Texas Independent Producers and Royalty Owners. More than 19,000 of those layoffs were in operations, nearly 9,000 were in the drilling sector, and more than 6,000 were in oil-field manufacturing. Texas oil patch jobs made up 40% of the U.S. total through the first six months of the year.

One of the world's largest banks is pulling out of a wide swath of the energy sector. Deutsche Bank is ending its involvement in oil sands and arctic production.  In an announcement, the German bank said it is ending support for fracking projects where water is scarce, and that it would end all business in coal mining within the next five years.

The government on Tuesday reported that U.S. coal production last year fell to its lowest level in four decades. EIA says coal output was down seven percent from the year before, to the lowest annual production total since 1978. The report anticipates an even larger decline this year.

Oil-by-rail shipments were up for the week but remain more than 14% lower than a year ago. The Association of American Railroads says the running total of rail shipments of petroleum products is down 12% year-on-year.

Some new research suggests a slow recovery in demand for jet fuel will drag on total global oil demand for at least another two years. Overall airline passenger counts are low and mandatory quarantines are dissuading people from traveling internationally. Analysis from Bank of America's Global Research team says demand for jet fuel may take years to recover completely, but suggests a slight rebound may come as early as the third quarter of next year.