Articles Posted in Oil and Gas News

The ownership of oil and natural gas companies may not be what people commonly think it is or expect it to be. The fact is that over 80% of the ownership of oil and gas companies in America is held by private individuals, either in their individual names or through their IRA, mutual fund or pension fund.

Broad Ownership of Public Oil Companies

A report of an investigation by Robert J. Shapiro and Nam D. Pham notes thate oil and gas company officers and managers, the corporate management, own a mere 2.9%. Asset management companies, including mutual funds, own 24.7%. Pension funds control 28.9%. Individual investors, which come in as the third highest portion at 18.7%, control a significant portion of the wealth. Next in line are IRAs, which control 17.9%. Other institutional investors own 6.9% percent.

There is no denying the importance of the Texas oil and gas industry to the Texas economy. A less obvious impact is the effect of oil and gas prices on Texas land values.

Texas A&M University’s Real Estate Center released an econometric model positing a powerful correlation and interdependence between rural land prices and Texas oil prices. For most landowners, their land is arguably their most valuable possession. Land is also a vital ingredient for the oil industry. In addition, the oil industry is highly competitive in terms of offers to lease mineral rights and make use of the surface. The price of one’s land can be calculated from the value of projected future revenue the landowner receives from an oil company.

Land prices are determined by two factors: expected net revenue and the discount rate applied to future cash flows. The higher the price of oil, the greater the revenue from bonus and royalty income will be for oil and gas producing land. The increase in oil prices also effects oil company workers, shareholders, and executives in the form of increased salaries, bonuses and share prices. With more to spend, the workers and shareholders can pay more for land and so this helps bid up land prices as well.

There is a new technology developed by Texas Tech University called “zipper frac.” It is a hydraulic fracturing process, which serves to fracture the subterranean rock formations by using pressurized liquid. Texas Tech University modified the original technique. As the zipper frac process commences, it creates the fractures, or splintering, in a staggered order. Tests have proved the new zipper frac ameliorates the fracturing process; the contact area is able to expand and the fluid production is augmented. The technique calls for two simultaneous parallel horizontal wellbores that are in close proximity of each other.  The Texas Tech researchers report that the modified fracing process will not only cost the same, but more importantly, guarantee a greater return and thus make wells more efficient.

The Zipper Fracing Advantage

The modified zipper fracing process combines the benefits of alternating fracturing and zipper frac. By doing so, modified zipper frac is able to create greater intricacy in the reservoir. The modified process is much simpler and does not require the use of specialized tools. This particular process eliminates some of the risks associated with stress reversal, which typically occurs near the wellbore. There is also the promise of superior long-term fluid production. The objective with the zipper frac technique is to alter the stress field and thereby create a more substantial fracture network, which is important for shale reservoir development.

There are some relatively new operators in the Texas oil and gas industry. One of these is Parsley Energy, Inc. which was founded in 2008. Run by a relatively young management team, Parsley Energy appears to be establishing a good reputation in an industry which is typically dominated by more seasoned players.

Parsley Energy is an independent natural gas and oil company operating primarily in the Permian Basin and the Midland Basin. Parsley has experienced significant growth since its inception and now operates hundreds of wells and produces over twelve thousand barrels of oil each day.

The Permian Basin

Another piece of scientific evidence has been published that suggests that the negative press over hydraulic fracturing may be unwarranted. As most of you are aware, there have been many accusations reported in the media that fracing allowed methane to enter and contaminate water wells. While methane is not particularly toxic, it is smelly, explosive and thus potentially dangerous. A new study that you can read here was published last fall in the Proceedings of the National Academy of Sciences. That study concluded that contaminated groundwater in Texas and Pennsylvania is not due to fracing but is primarily the result of problems with pipes and seals at natural gas wells, and particularly with annulus cement, production casing, and failure of the water wells themselves.

The study authors chose research areas in the Marcellus Shale and the Barnett Shale where the most complaints of water contamination were reported. The study addressed two questions: (i) are elevated levels of hydrocarbon gases in drinking-water aquifers near gas wells natural or anthropogenic (i.e., resulting from the influence of human beings); and (ii) if fugitive gas contamination exists, what mechanisms cause it? The study was conducted by analyzing chemicals, like methane, in groundwater using noble gas and hydrocarbon tracers. This process allowed the researchers to determine if gas wells were contaminating the water, if so, which wells and also to determine which part of the drilling process or equipment was to blame. The proportions of elements such as methane, helium, neon, and argon in the groundwater demonstrated that these elements originated from leaky pipes and bad seals. If the contamination had come from fracing, the water would have exhibited different proportions of these elements.

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Parsley Energy Inc., based in Midland, Texas, has been buying undeveloped and productive land in Reagan County.

Parsley Energy is an independent oil and natural gas company founded in 2008 with operations in the Permian Basin. The company develops unconventional oil and gas reserves. It has grown exponentially in the past few years, from a start up with two people to a company that operates several hundred wells and produces more than 12,000 barrels of oil equivalent per day. The company owns more than 97,371 surface acres in the Midland basin and 121,211 surface acres in the Permian. They have horizontal and vertical wells in the core of the Midland basin and expect to continue to grow and produce good rates of return on investments. This appears to be borne out by their latest $252 million purchase in Reagan County, which breaks down into $26,000 per net acre with $60,000 per flowing barrel of oil equivalent. They have added more than 16,000 net acres and 456 net horizontal drilling locations, including these newly announced locations in Reagan County, since their initial public offering in May 2014.

As Parsley Energy develops its assets in Reagan County, they will be requesting leases from mineral owners. This means mineral owners in Reagan County need to consult with an oil and gas lawyer before signing any leases. Signing leases without consulting a lawyer can lead to financial losses and stress. See my previous posts on this issue here and here. It’s not worth the risk yo your land or your finances not to get input from an oil and gas attorney.

The number of U.S. refineries and petrochemical production plants that have been subjected to United Steelworkers strikes has now reached eleven locations in California, Kentucky, Texas and Washington. It’s hard to imagine a more outrageous case of bad timing. Let’s see: oil and gas are at their lowest prices in years, the oil industry is hog tied by out-of-date export restrictions that prevent many sales to non-U.S. buyers, and the true unemployment rate (hint: it’s not the number the U.S. Labor Department puts out) is depressingly high, about 12.6%. Yet, the United Steelworkers are striking. Go figure.

Part of my growing up years were spent in Detroit, Michigan, where it was not uncommon for violence to be used by the United Auto Workers to force folks to join the union. The father of a girl I went to high school with was murdered because his employees resisted unionizing his small trucking company: His car blew up in the driveway of their home when he got in and turned on the ignition to go to work. No doubt his employees got the message.

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This blog frequently shares news regarding developments in the oil and gas industry, particularly in Texas, and how growth in that industry effects Texas mineral owners. As the industry grows, increased opportunities arise for Texas land owners, such as the opportunity to negotiate oil and gas leases. (for more information on leasing, please see my previous blog on this topic that you can access here.

Texas has an oil output of more than 3 million barrels per day, which is one third of the total U.S. oil production. Texas could soon outpace the second biggest oil producing country in Organization of the Petroleum Exporting Countries (OPEC), which is Iraq (after top producer Saudi Arabia).

Production data from the Permian basin shows that in the last year it has become the largest crude oil producing region in the U.S. In 2013, Permian oil was 18% of total U.S. crude oil production according to the U.S. Energy Information Administration. Production in the Permian basin has increased to 1.35 million barrels per day up from 850,000 b/d in 2007 and is exceeding production from the federal leases in the Gulf of Mexico.

The Permian Basin is on its way to becoming the most productive oil play in the United States. In the next few years, the Wolfcamp Shale in this basin could by itself overtake the Bakken Shale in North Dakota and Montana in the amount of money spent for exploration and production in tight oil plays.

Currently, the exploration of the Wolfcamp Shale is occurring in the following Texas counties: Glasscock, Sterling, Reagan, Irion and Crockett. As the area is explored further, adjacent counties may be involved.

Wood Mackenzie, a research and consulting organization, did an analysis on Wolfcamp recently and came to the conclusion this could happen as early as 2017. At present, Wolfcamp comes in third in expenditures after the Bakken and Eagle Ford Shales. This year’s expenditure in the Wolfcamp is more than $12 billion, mainly due to an increase in drilling rigs in the first and second quarter of 2014, which is 80% of what was spent this year in the Bakken Shale. Wood Mackenzie increased its projections for Wolfcamp capital expenditures in 2015 by more than $4.3 billion to $13.9 billion. Crude and condensate production is about 200,000 barrels per day now but is expected to reach 700, 000 barrels per day by 2020.