Athabasca Oil Corp. has called the first halt to an entire Canadian bitumen production site in response to depressed prices and the economic contraction caused by the coronavirus pandemic.

The Calgary firm mothballed its Hangingstone operation, shutting in about 9,500 b/d tapped by steam injections from natural gas-fired boilers into a northeastern Alberta oilsands deposit near Fort McMurray.

Just to break even financially, Athabasca said the plant needed a heavy oil price of $37.50/bbl, or more than four times the most fetched since early March by Alberta benchmark Western Canada Select.

The Hangingstone output was only 0.3% of Alberta’s 2.9 million b/d oilsands production and 0.2% of Canada’s total 4.6 million b/d output of all crude types. Canadian exports nudging 3.8 million b/d dominate oil imports by the United States.

But Athabasca’s announcement supported Canadian analyst predictions of industry-wide production cuts. Said one...

The start of the second quarter has not been a good one for the oil and gas industry, as it appears no global operator will be spared from the devastating oil price war and deadly coronavirus pandemic.

Covid-19 has thus far shown little regard for the massive efforts underway to halt its spread, forcing millions of people inside around the world, which in turn slammed consumption.

Coming off one of the largest down weeks in the past two decades, the pace of retrenchment in the U.S. onshore accelerated during the week ended Friday (April 3) as 64 rigs exited the patch, according to the latest figures from Baker Hughes Co. (BKR).

The unmistakable price signal of $20/bbl oil has prompted a swift response from upstream operators, with the slowdown in activity this week even more pronounced than the 44-rig drop BKR recorded in the week prior. Most of the recent week’s losses occurred in the oil patch, with 62 oil-directed rigs packing up, joined by two natural gas-directed. That dropped the combined domestic tally to 664, off from 1,025 rigs active in the year-ago period.

Land drilling accounted for the entirety of the drop-off, with the Gulf of Mexico maintaining 18 rigs, flat week/week.

Horizontal rigs saw a net 60-unit decrease week/week, with directional rigs down six units. Two vertical units were added.

In...

Produced water from U.S. onshore oil and gas wells is expected to total nearly 20 billion barrels annually by 2022, down almost 4% from 2019 volumes, according to new analysis by IHS Markit.

The consultancy expects the oilfield water management market to be valued at about $28 billion in two years, a 20% downward revision from previous forecasts because of the recent oil price collapse and demand destruction for oil and gas caused by the Covid-19 outbreak, said principal research analyst Paola Perez-Peña.

A sharp decrease in drilling and completion (D&C) activity over the next two years will significantly reduce hydraulic fracturing water volumes, “while the decline in produced water volumes will be less severe,” Perez-Peña said.

A seemingly endless slew of U.S. producers have announced sharp cuts to their 2020 capital expenditures (capex) in response to the extreme oversupply and demand uncertainty facing the market, while exploration...

The borrowing bases of U.S. oil and natural gas producers are likely to be reduced by at least 20% as the outlook for commodity prices remains grim, according to Haynes & Boone LLC.

As it does twice a year, the law firm surveyed 207 executives from mid-February to late March about price decks, as well as expected borrowing base redeterminations for exploration and production (E&P) operators, which financial institutions conduct every spring and fall.

Most of the respondents were E&Ps (46%) followed by lenders (34%), along with oilfield services firms, private equity (PE) firms and alternative financiers.

Haynes and Boone’s Kraig Grahmann, head of the Energy Finance Practice Group, said the surveys initially were sent in mid-February, but they were sent again in early March as the coronavirus became a global pandemic and after Russia and the Organization of the Petroleum Exporting Countries launched an oil price war.

The...

The energy industry remained in turmoil Thursday as the dual threats of Covid-19 and the oil price war decimated demand, leading to more operators announcing steep capital reductions.

North American technology specialist Patterson-UTI Energy Inc. became one of the largest oilfield services (OFS) operators to join in the cost cutting, announcing Thursday it has trimmed capital expenditures (capex) by 60% to $140 million.

A “number of facilities” also are being shuttered as the Houston firm reduces direct operating costs in line with activity declines. And executive compensation has been reduced by more than 50%.

"The safety of our employees remains our top priority,” CEO Andy Hendricks said. "Patterson-UTI has effectively responded to other downturns in its more than 40-year company history. While the circumstances leading to this downturn may be different, our response will be guided by the same principles that have guided us through previous...

West Virginia now has a law on the books to protect natural gas pipelines and other infrastructure from criminal activity, the first of its kind in the Appalachian Basin.

Republican Gov. Jim Justice last week signed House Bill 4615, otherwise known as the West Virginia Critical Infrastructure Protection Act, which increases penalties for trespassing or deliberately damaging a variety of virtual and physical assets.

Sponsored by a group of Republican lawmakers, the critical infrastructure covered under the bill is similar to the federal government’s categories for such assets. The bill applies to chemical manufacturers, compressors, natural gas processing plants, pipelines, hydrocarbon storage facilities and refineries, among other things. 

Anyone who is charged with trespassing at sites would face misdemeanor charges that include a fine of up to $1,000 and up to one year in jail. If a person were to damage or vandalize assets, they could be...

Houston-based Carbo Ceramics Inc., now restructuring under Chapter 11, has agreed to sell out to privately held Wilks Brothers LLC, a pioneer Lower 48 hydraulic fracturing operator.

Carbo, a high-end ceramic and sand proppants operator that provides material for onshore completions, reached a debt-for-equity exchange with Wilks and Equify Financial LLC as part of the Chapter 11 process filed late last month in U.S. Bankruptcy Court for the Southern District of Texas, Houston Division.

Carbo expects to continue to operate in the ordinary course of business throughout the restructuring process.

"Like many companies with a significant concentration in the oil and gas industry, we have felt the impact of the challenging business environment and, in response, have worked diligently to strengthen our overall financial foundation," said Carbo CEO Gary Kolstad.

"While Carbo has undoubtedly made progress in our transformation strategy, we...

Affiliates of Chesapeake Energy Corp. and Total SA again have defeated a class action lawsuit in federal court that sought to recover millions of dollars for landowners who alleged the companies underpaid royalties on oil and gas produced from properties in Eastern Ohio.

The U.S. District Court for the Northern District of Ohio agreed with the defendants’ interpretation of how royalty payments should be calculated and paid to the plaintiffs under the terms of their leases.

The court found that the language of the leases was not ambiguous, and a result was “the beginning and the end of this case.” Judge Benita Y. Pearson also rejected the plaintiffs’ claim that they should receive royalties based on proceeds of sales at downstream locations, which carry a higher value.

Pearson found that the netback method of determining royalties at the wellhead was appropriate given the companies’ contracts with landowners. The netback method calculates the...

Lisa Murkowski (R-AK), chairman of the Senate Energy and Natural Resources committee, is urging the Department of Energy’s Energy Information Administration (EIA) to publish data on oil storage capacity as a warning indicator of potential shut-in oil production.

“I am growing increasingly concerned about the resilience of the American energy system to the shock of vastly oversupplied crude oil, on the one hand, and the destruction of demand in consuming sectors of the global economy, on the other,” Murkowski said in a letter to EIA Administrator Linda Capuano Tuesday. “This situation cannot persist indefinitely: either supply will decrease, as costs overwhelm producers, or demand will increase, due to the effects of economic stimulus and ultimate recovery from the pandemic…

“Based on my conversations with energy experts, I believe that we must prioritize the collection and analysis of data related to petroleum storage. Producers will continue to...

Meanwhile, Brazil’s supermajor Petróleo Brasileiro SA, which last month cut capex to $8.5 billion from $12 billion, on Wednesday adopted even more austerity measures. Petrobras, as it is known, said the “current scenario is marked by an unprecedented combination of an abrupt fall in the price of oil, a surplus in the market and a strong contraction in global demand for oil and fuels. These new measures involve reducing oil production, postponing cash disbursements and reducing costs.”

Beginning Wednesday, oil production has been cut by 200,000 b/d, with the duration of the restriction “continuously assessed.”

To achieve an announced $2 billion reduction in operating expenses this year, Petrobras among other things plans to trim $700 million in personnel costs. Among other things, monthly remunerations are to be reduced by 10-30% for managers, coordinators, consultants and supervisors.

In addition, workdays have been reduced at Petrobras to six hours from...

Denver-based Whiting Petroleum Corp. has filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas, citing low oil prices and an uncertain outlook for the sector.

“Given the severe downturn in oil and gas prices driven by uncertainty around the duration of the Saudi/Russia oil price war and the Covid-19 pandemic,” Whiting’s board concluded that a restructuring of its debt “provides the best path forward for the company,” said CEO Bradley Holly. “Through the terms of the restructuring, we believe a right-sized balance sheet will enable us to capitalize on our enhanced cost structure, high-quality asset base and successfully compete in the current environment.”

Holly said that Whiting, which operates in the Williston and Denver-Julesburg basins, “took proactive steps” to reduce its cost structure and improve its cash flow profile in 2019, and that it has “explored a wide variety of alternatives to address our...

A Texas-size group of operators and trade associations on Tuesday launched a Lone Star effort to minimize flaring and methane emissions from the largest producing state in the nation.

The Texas Methane and Flaring Coalition collectively plans to identify and promote operational and environmental recommended practices by evaluating existing data and evidence on flaring and methane emissions. The goal is to develop opportunities and recommendations to minimize these practices.

Among other things, the coalition wants to define why and when flaring is necessary and communicate the environmental and safety reasons that may necessitate flaring. It also wants to identify, assess and recommend opportunities and best practices, as well as evaluate existing studies.

The Texas Independent Producers and Royalty Association (TIPRO) is one of the founding members.

“Amid the boom of oil and gas development over the last decade in Texas, the state’s...

Covid-19 is continuing to cast its dark shadow across the energy sector, as more layoffs are announced and further reductions to capital spending marred the end to the first quarter.

Schlumberger Ltd., the world’s largest oilfield services operator, plans to reduce capital expenditures (capex) by around 30% from 2019 and lay off an untold number of employees who work in North American land operations. CEO Olivier Le Peuch had signaled the capex reduction earlier in March. A “rapid reduction” in the rig count is forecast for 2Q2020, which could trough to 2016 levels, Le Peuch said.

Schlumberger, which usually kicks off the quarterly energy sector earnings season, is scheduled to report first quarter results on April 17.

In the Lower 48, the toll of the pandemic and excruciating oil prices has forced exploration and production (E&P) companies to cut capital spending by double-digits across the board.

Marcellus Shale heavyweight Range...

Pennsylvania Gov. Tom Wolf has vetoed a bill that would have provided a tax credit for using state-produced natural gas to make petrochemicals or fertilizer.

The governor indicated in his reasoning for the veto that the state must protect its limited resources as it battles the coronavirus outbreak. He also claimed that wage provisions for employees were not included in the bill.

“The required capital investment from companies and required job creation thresholds that must be met in order to receive the credits must adequately align with the level of economic development incentive,” Wolf wrote in his veto message. “Furthermore, this bill does not guarantee the creation of jobs paying prevailing wages -- wages Pennsylvania’s workforce deserves when a project receives this level of financial commitment from the commonwealth.”

House Bill (HB) 1100 passed the general assembly earlier this year with bipartisan support. Wolf indicated at the time...

TC Energy Corp. and the Alberta government on Tuesday announced a C$7.5 billion ($5.3 billion) financing agreement and immediate start on construction for the Keystone XL oil export pipeline into the United States.

The deal includes a C$1.5 billion ($1.1 billion) government ownership stake plus a C$6 billion ($4.2 billion) provincial loan guarantee to kickstart the growth project for Canada’s top natural gas user, Alberta thermal oilsands production.

While still awaiting contested federal court and state permit approvals in the United States, TC said the government support would enable work to start right away on the 259-kilometer (155-mile) Canadian leg of Keystone XL from Central Alberta to the U.S. border.

Alberta Premier Jason Kenney described the pipeline project as a greatly needed lift for Canada’s chief fossil fuel-producer province through hard times caused by the Covid-19 virus and depressed oil prices.

“We cannot wait for...

Natural gas from Argentina’s province Neuquén, home to most of the Vaca Muerta deposit, fetched $1.79/MMBtu on average in the latest online auction held by Argentina’s online gas market Mercado Electrónico del Gas (Megsa).

The tender, held in late March, was specifically for power generation for the month of April. The buyer of the gas was Compañía Administradora del Mercado Eléctrico Argentino (Cammesa), which is in charge of guaranteeing power supply to Argentina.

Megsa did not specify the seller companies that took part in the auction. The auction is now being held on a monthly basis for power generation and this is the fourth of its kind.

Prices for gas from Neuquén were capped at $2.67/MMBtu.

The auction is the first since the coronavirus has essentially halted Argentina’s economy. The nation has been on lockdown since the middle of March, and President Alberto Fernández extended the nationwide quarantine until the end of Holy...

Wyoming Gov. Mark Gordon on Friday signed into law a bill authorizing tax breaks for new oil and natural gas production “in specified price environments and for specific periods,” providing a bit of relief to producers struggling with market volatility caused by the coronavirus outbreak and a price war between Saudi Arabia and Russia.

Under the legislation, 2% of the market value of production resulting from wells drilled on or after July 1 would be exempt from severance tax, as long as necessary conditions are met.

The normal severance tax on Wyoming oil and gas production is 6% of fair market value.

In the case of natural gas, the 2% exemption would only apply if the rolling average Henry Hub spot price is below $2.95/Mcf for the 12 months immediately preceding first production.

For crude oil, the corresponding West Texas Intermediate ceiling price is $50/bbl.

If applicable, the exemption is to cover the full 2% rate for the...

A federal district court has upheld the Trump administration’s 2017 decision to rescind a rule governing hydraulic fracturing (fracking) on public and tribal lands.

California and environmental groups led by Sierra Club had filed suit to block a Bureau of Land Management (BLM) final rule issued in late December 2017 to officially rescind the fracking rule the Department of Interior (DOI) unveiled in March 2015.

Issuance of the final rule, they said, violated the Administrative Procedure Act, National Environmental Policy Act and the Endangered Species Act.

California argued that BLM arbitrarily ignored the foregone benefits of the 2015 rule when weighing the costs and benefits of repealing the rule, according to court documents.

Judge Haywood Gilliam of the U.S. District Court for the Northern District of California disagreed, finding among other things that BLM “met the requirement of providing a ‘reasoned explanation’ for why it is...

With the outlook for oil and natural gas demand dimming because of the restrictions imposed by Covid-19, global capital spending may fall by 17% year/year with the Lower 48 producers taking the brunt.

BofA Global Research on Monday for the second time in two weeks cut its oil price forecast for West Texas Intermediate (WTI) and Brent. WTI now is expected to average $32/bbl in 2020 and $42 in 2021, with Brent averaging $37 this year and $42 in 2021.

The market is reflecting an “inevitable surge in inventories and the likely stock overhang in 2021. It is very ugly, and there is no way to sugarcoat it. We expect a major storage containment problem before the summer kicks in.”

In the near term, BofA analysts expect to see a steeper decline than the forward markets are now reflecting, but a faster recovery in 2021 “as production collapses and demand recovers next year. Needless to say, any future inventory and price path is highly uncertain given...

At a time when oil and natural gas companies are slamming the breaks on development from an ongoing price war, Tailwater Capital LLC on Thursday closed an energy fund with $1.1 billion in capital commitments that furthers its strategy to identify attractive midstream opportunities.

The $1.1 billion in capital, which included a co-investment for one of Tailwater Energy Fund IV LP’s platform companies, is to be used to employ a “disciplined and nimble approach” to investing, targeting opportunities across the midstream value chain, according to management of the private equity (PE) firm.

“Raising our largest fund to date in today’s energy environment is a testament to the strength of the Tailwater team and the longstanding trust our investors have placed in us to continue identifying attractive opportunities in the midstream sector, said co-founder Edward Herring.

With management teams operating in all of the core onshore basins in the...