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A green light for North America?

Oilfield Technology,

Few would disagree that 2009 was a terrible year for the North American oil patch. But now, as 2010 unfolds, the sector is gearing up to go. Is this the beginning of a renaissance in the petroleum industry or a false rally?

The good news
Rig counts began to creep up in Q1 2010 and budgets are back. Super majors with deep pockets have begun hunting for bargains, e.g. ExxonMobil splashed out US$ 41 billion in an all stock deal to buy XTO Energy, whilst other companies are forming joint ventures to flush out E&P investment funds, e.g. Chesapeake Energy joined forces with Total, agreeing to a US$ 2.25 billion deal in which the French giant would acquire 25% in Chesapeake’s Barnett Shale assets.

Tar nation
But the biggest stimulus to the sector has been the recovery of commodity prices. Oil nudged back into the US$ 70 - 80 range, making the more expensive conventional plays, such as deep sea targets in the Gulf of Mexico, more viable. The resurgence of gas prices has been an even greater relief; a frigid winter season on the East Coast has resulted in greater than expected drawdowns, propelling Henry Hub prices into the US$ 5 - 6/ million Btu range.

No one has felt a greater sense of relief than the oilsands. When oil prices plunged, punters scampered for the exits and 2009 capital investment in the region dropped almost 75% to C$ 4 billion. Now, analysts predict oilsands spending to surpass C$ 8 billion in 2010. In all, the Conference Board of Canada now expects oilsands producers to add another 1 million bpd by the end of 2013, topping the 2.4 million bpd mark.

Gas explorers are also relieved. Shale gas production, spurred by intense development of the Barnett formation in Texas, reached 5.4 billion ft3/d last year, and is expected to hit 11.5 billion ft3/d by 2030. The US Department of Energy (DOE) estimates that there might be up to 2000 trillion ft3 of recoverable shale gas, enough to meet the country’s gas needs for a century. Now that prices have returned to profitable levels, companies are moving ahead with plans to expand production beyond Texas and Louisiana into Pennsylvania and even New York State.

Recovering gas prices will also help the prospects of stranded Arctic gas.

Environmental challenges
The recovery of the industry is not without complications. During the 2008 US presidential election, environmental activists brought O&G development to the forefront of public consciousness. Recently, the Environmental Protection Agency (EPA) found chemicals associated with cancer, kidney failure and fertility problems in water from 11 of 39 wells tested around a shale gas reservoir in Wyoming. Although the origin of the chemicals is still uncertain, opponents see it as proof that fracturing is indeed harmful to the environment.

But the greatest concern is with greenhouse gases (GHGs). In order to reverse GHG buildup, the majority of nations around the world signed the Kyoto protocol, agreeing to an emissions reduction to 6% below 1990 levels by 2012. The USA did not sign the Kyoto accord. President Barack Obama endorses cap and trade legislation calling for a 17% reduction of 2005 levels by 2020, and an 83% reduction by 2050. As approximately one-quarter of North American GHG emissions arise from the burning of fossil fuels by on road vehicles, federal legislation and EPA regulation are expected to have a profound impact on the petroleum sector.

The future
As the global recession recedes, energy consumption will once again increase. New crude sources, such as the oilsands, and renewed sources, such as mature fields undergoing EOR, will displace imports. The increased use of natural gas for electricity generation, as well as increased use in the transportation sector, will soak up the surplus created by the success of shale gas. And, in spite of the current focus on subcompact cars and electric vehicles, nobody is predicting the demise of North America’s love of the gas guzzler just yet.

Author: Gordon Cope

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