Oil and Gas Investor Blog

“We needed a really dreadful (price) event to stop people from drilling gas wells and bring some balance to the supply and demand.”

While producers highlighted their liquids-rich profiles, natural gas prices were also addressed at OGIS New York-directly at times but mostly indirectly, as if “gas” is the “Voldemort” of the industry as “he who must not be named” is in the Harry Potter stories.

John Walker, chairman and chief executive of EV Energy Partners LP and a contrarian buyer of gassy properties and production in the past few years, said, “For the first time since 2007, I’m turning a little bit positive about natural gas (dynamics)…

“We needed a really dreadful (price) event to stop people from drilling gas wells and bring some balance to the supply and demand.”

Walker addressed some of the more than 1,600 registered attendees at the IPAA’s 18th annual oil and gas investment symposium last week.

The company’s production is hedged at higher-than-current gas prices through 2014, “so we’re okay through then.” He still seeks to add gas-as well as oil-properties to EV’s portfolio, he added. “All we’re looking for is a good PV (present value). Rate of return is what drives us.”

Tim Benton, GMX Resources Inc. executive vice president, geosciences, said of the Haynesville dry-gas play, “When you’re selling gas at $2 an Mcf, it’s hard to be excited about anything.”

Leaseholders in the northwestern Louisiana gas field have now mostly secured their positions by 640-acre sections-some of it leased for as much $25,000 an acre in late 2007 and early 2008 when gas prices were more than $10 an Mcf-and are laying down rigs rapidly.

However, GMX has acreage over and production from the oily Bakken, Sanish and Three Forks in North Dakota, as well as leasehold over the oily Niobrara in the Rockies. And, it is focusing its efforts there.

Tony Best, SM Energy Co. president and CEO, noted, “We’re completing our last Haynesville well at this time.” All of its acreage there is now held by production. New wells are possible when gas prices improve.

Gary Evans, Magnum Hunter Resources Corp. chairman and CEO, said the company is also reducing its gas-directed drilling. “We’re trying to do our part.”

-Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.

“…Generally I’ve had a debt load of around $500 million-and it’s not much if you say it quick.”

“At 80 years old, I’m really glad to be here,” Clayton Williams, founder, chairman, president and chief executive of Clayton Williams Energy Inc. (Nasdaq: CWEI), told some of the more than 1,600 registered attendees at the IPAA’s 18th annual OGIS New York investment symposium last week.

The legendary Permian Basin wildcatter joined Mel Riggs, executive vice president and chief operating officer, in presenting the Midland, Texas-based company’s financials and outlook, providing some current color to the U.S. oil and gas field, which he calls “the most fun business I can imagine.”

The business begins with an idea, he said, and then geologic work, some seismic shoots, leasing, drilling a well, and “you create wealth for a lot of people…that didn’t exist until it started in your mind.”

During his career, he adds, “many times, you wouldn’t have recognized me. Back when oil was (a remarkable at the time) $40 in the old days, I was 6 foot 4; by the time it got down to $9,” not so tall, he quipped.

And, it’s important to use other people’s money, OPM, and to do it wisely. “I never had enough cash flow to do what I thought needed to be done, so generally I’ve had a debt load of around $500 million-and it’s not much if you say it quick.”

A good reputation is essential. “I’ve borrowed money from a lot of different banks. I can tell you I could go back to all of them-but there’s one or two I wouldn’t go back to because they were hard on me when I was down and now they come around, kissing my…

“So I think a good reputation, paying it back, meeting your commitment of doing what you said you would do has been my trademark…(This way,) you go bed and sleep at night. I like that. So, life has been good for us.”

About that cash flow and credit capacity, the “banks are still happy with us.” The company has a $475-million borrowing base and has drawn $180 million. “We haven’t even used up all our credit this time. I don’t know what we’re doing wrong,” he joked.

Some more highlights:

–In Reeves County, Texas, in the Permian Basin, “holy mackerel” there are more than a dozen pay zones to tap. The company will work toward holding its 60 square miles of leases by production from vertical wells in Wolfcamp and Bone Springs, which will take two years alone, and then come back with horizontal wells. “It’s an amazing thing that has happened right next door to where I live (in Midland).”

–”We have problems in the Permian with getting the oil out of the basin, there’s so much production that has come on.”

–The company holds a lot of acreage that has potential for renewed production via waterfloods. “They’re wonderful, but sometimes they (have a) three- or four-year payout. We think our opportunity is in drilling wells today and putting (our) new acreage into HBP (held by production)…When we get bored…, we’ll go into the waterfloods.”

–The company is also a long-time producer from the Austin Chalk in Texas, and its acreage doesn’t include much prospective for Eagle Ford. “It’s good reserves and economics, but we were late having acreage in it.”

–Nearly 50 of the company’s employees have been with it for between 20 to 35 years. “If you take care of your employees, they’re going to take care of you. I think that’s the right way to run a company; I know…it’s the best way to live your life.”

–As oil prices have fluctuated, including to as little as $10 in the late 1990s, “I’ve been through five different layoffs and about that many pay cuts to be able to stay in business these years.”

–The U.S. is the best place to build a business. “I’ve been able to keep people a long time…We’ve been able to do that because we live in a free country and we live in Texas, which is probably the freest state…All of this (business) would be bull—-, if we didn’t have the privilege of being in the United States of America.”

Williams, who once ran for governor of Texas, concluded his remarks: “And, relax. I’m not running for a damn thing.”

-Nissa Darbonne, Editor-at-Large, Oil and Gas Investor,OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.

Speakers include Citigroup’s Ed Morse, presidential campaigner Dick Morris, and Petrohawk founder Floyd Wilson.

Oil and Gas Investor’s annual Energy Capital Conference, “Inside the Boardroom-Have a Seat at the Table,” opens June 6 at the Omni Houston with two encore half-day exclusive sessions: “The CFO Workshop: Beyond the Numbers” and “The Workshop: Starting and Building an E&P Company, 2012.”

The full-day forum opens June 7 with keynote remarks by Ed Morse, managing director and global head, commodities research, for Citigroup Global Markets Inc., from his new report, “Energy 2020-NorthAmerica as the New Middle East.”

Morse says, “The United States has become the fastest-growing oil and gas producer in the world, and is likely to remain so for the rest of this decade and into the 2020s.” Only one thing can impede this, he adds: Politics.

Also, closing keynote remarks will be presented by Dick Morris, political author and presidential campaigner and advisor.

Joining Morse and Morris will be additional, leading insiders and forecasters discussing matters that affect E&P and other energy company-builders, including:

–Floyd Wilson, chairman, president and CEO of Halcon Resources Corp. and founder of Petrohawk Energy Corp., which was sold to BHP Billiton Ltd. last year for $15 billion,

–Tom Ward, founder of chairman and CEO of SandRidge Energy Inc., which is the lead developer of the Mississippi Lime play in Oklahoma and southern Kansas,

–Gary Evans, founder, chairman and CEO of Magnum Hunter Resources Corp. and chairman of GreenHunter Energy Inc.,

–John Olson, the award-winning 35-year natural gas analyst and retired managing partner of SMH Capital Group’s Houston Energy Partners,

–Forrest Hoglund, chairman and CEO of LNG tanker company SeaOne Maritime Corp. and former chairman of EOG Resources Inc. and Forest Oil Corp.,

–Kent Wilkinson, vice president of Chesapeake Energy Corp.’s new Chesapeake NG Ventures Corp., which has invested in Clean Energy Fuels Corp. and other companies working toward greater use of U.S. natural gas,

–Dr. Peter Hartley, Rice University professor of economics, James A. Baker Institute fellow and the current president of the U.S. Association for Energy Economics,

–Marty Phillips, co-founder and managing partner of private-equity firm EnCap Investments LP, which has invested approximately $5.5 billion in 175 different oil and gas companies in the past 20 years,

–Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University and author of numerous articles and a blog, “Barrels and BTUs,”

–John McNabb II, vice chairman, investment banking, for Duff & Phelps Corp. and founder of energy financier Growth Capital Partners LP,

–Mark Ammerman, industry head, energy, U.S., Latin America and U.K./Europe, for Scotiabank Global Banking & Markets, which is in the midst of acquiring New Orleans-based boutique investment banker Howard Weil,

–Mark Bononi, senior analyst for global small- and midcap energy-sector growth investor Vedanta Energy Fund, and

–Bill Weidner, president and CEO of Weidner Advisors and the former co-manager of The Rodman Energy Group and COSCO Capital Management.

Workshop presenters include

–Carl Tricoli, co-founder, managing partner and co-president, Denham Capital Management LP,

–Frank Verducci, managing director, structured products, BP Corporation North America Inc.,

–John O’Shea, co-founder & CEO, Tradition Midstream LLC,

–Dr. Tomas Villamil, co-founder & executive vice president, exploration, C&C Energia Ltd.,

–Matt Steele, president and CEO, Ursa Resources Group II LLC,

–Tyler Crabtree, chief financial officer, Ursa Resources Group II LLC,

–Mike Wylie, president, Cascade Petroleum LLC,

–Jerry McGee, president and CEO, Cadre Proppants,

–Jim Burgoyne, managing director, natural resources, GE Energy Financial Services,

–Bill Montgomery, managing director, Quantum Energy Partners,

–Sylvia Barnes, managing director and head, oil & gas corporate & investment banking, KeyBanc Capital Markets,

–Chris Croom, president, Asset Risk Management LLC,

–Bryan Chapman, executive vice president and manager, energy lending, IberiaBank,

–Craig Lande, managing director, RBC Richardson Barr, and

–Dick Rice, partner, Bracewell & Giuliani LP.

Hear the experts’ views on politics, the spread and take-away issues; raising and investing capital; the natural gas conundrum or arbitrage opportunity; and opportunities for both organic and inorganic growth. All of this directly from top decision-makers and their advisors.

Click here for the agendas: Energy Capital Conference, The CFO Workshop, The E&P Start-Up Workshop.

-Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.

Privately held E&Ps have been picking
up rigs faster than publicly held E&Ps in the past month, Uhlmer adds.

Rigs that are exiting the Haynesville
dry-gas play in northwestern Louisiana and northeastern Texas at a rapid pace
are finding new homes in South Texas’ Eagle Ford oil and gas-liquids zone. “Since
the beginning of the fourth quarter of 2011, the once-prominent Haynesville shale
has witnessed an astounding 50-rig decline—a 43% decline—and now stands at 67
rigs,” says Brian Uhlmer, senior oilfield-services and -equipment analyst for
Global Hunter Securities LLC.

This is while the overall U.S. rig count
has grown 4% in that period, Uhlmer adds, based on Schlumberger Ltd.’s Smith
Bits rig data.

At the horizontal Haynesville’s peak in
2010, more than 180 rigs were drilling for the formation’s bountiful gas while
gas prices were mostly still above $4 and producers were rushing to secure
acreage for which many had paid more than $20,000 an acre to drill. Since then,
gas prices have fallen to some $2.50 per million Btu on Nymex, making many new Haynesville
wells uneconomic; several E&Ps have wrapped up or are nearly wrapped up
with holding their acreage by production (HBP); and/or some E&Ps will allow
to expire some acreage that has been determined since the height of the land
rush to be less-economic, “fringe” zones.

In the play, an E&P must have at
least one producing well per section (640 acres) to HBP the entire section and,
thus, be able to return another day to drill the rest of the section without paying
for new leases.

Uhlmer says, “Of the 50 fewer rigs
drilling in the Haynesville today, the Eagle Ford has been the most welcoming,
and currently accounts for 13 of the 30 ex-Haynesville rigs currently working
in other plays.”

Among the other rigs, he adds:

–Three have gone to work on the Austin
Chalk play just north of the Gulf Coast Basin;

–Three on the Granite Wash gas-liquids-rich
play in western Oklahoma and the Texas Panhandle;

–Three in the Permian Basin where new
horizontal oil and gas-liquids developments have pushed the total rig count to
more than 400;

–One in the Cana gas-liquids-rich play
where Devon Energy Corp. is dominant;

–One each in East Texas, other pay in North
Louisiana, the new oil-rich Tuscaloosa Marine Shale play in southeastern Louisiana
and southwestern Mississippi, and the Woodford shale play in eastern Oklahoma;
and

–Three in other plays.

Drillers with the most relocated or
idled rigs out of the Haynesville play (by number of rigs and not percentage)
since the end of September 2011 are:

–Trinidad Drilling Ltd., down 14, from
18 to four. Eight have gone to the Eagle Ford; one to the Tuscaloosa; and six
are idle.

–Patterson-UTI Energy Inc., down 10,
from 19 to nine. Two have gone to the Eagle Ford; one to the Austin Chalk; two
to other plays; and five are idle.

–Nabors Industries Ltd., down eight,
from 29 to 21. One has gone to the Austin Chalk, Eagle Ford, Permian each; one
has gone to another play; and six are idle.

–And, Ensign Energy Services Inc. and
Unit Corp., each down five, from five to zero. The new location of Ensign’s rigs
is to be determined, as Ensign is renaming the rigs, Uhlmer notes, after having
purchased them from Rowan Cos. Inc. The five Unit rigs are now in the Granite
Wash (one), Woodford (one) or idle (three).

Trinidad, Patterson-UTI and Nabors had
the most rigs running in the Haynesville at third-quarter 2011’s end. In the
No. 4 spot was Helmerich & Payne Inc., whose count has declined from 10 to
eight.

“Nabors remains the most active driller,
currently running 21 rigs in the play, followed by Patterson-UTI with nine, and
both Helmerich & Payne and (privately held) Scan Drilling with eight rigs.”

According to the Baker Hughes Inc.’s
weekly rig count, 1,984 rigs were at work at the end of last week, up 11 from
the week before and all of the additional are working on oil targets. “Year to
date, Baker Hughes’ oil-rig count has increased by 124 versus a gas-directed decline
of 146 rigs,” Uhlmer says.

He notes too that private E&P
companies are picking up rigs faster than public companies. “Public E&Ps
have put 13 more rigs to work over the past month. Private operators have
outpaced public E&P rig-count additions, putting 38 more rigs to work over
the past month.”

The U.S. land-rig inventory has plenty
more work to do: In just the past week, E&Ps submitted requests for permits
to drill 1,318 more wells locations across the U.S., “bringing the four-week
average to 1,407 or some 11% above year-ago levels.”

–Nissa Darbonne, Editor-at-Large, Oil
and Gas Investor, OilandGasInvestor.com,
Oil and Gas
Investor This Week, A&D Watch, A-Dcenter.com,
UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.

Railing in lieu of pipe is expensive and not enough railcars are
available, says Dahlman Rose’s Seidl.

Oil production from the Bakken play in North Dakota has now
reached some 600,000 barrels per day, up from virtually none just five years
ago and some 400,000 a day a year ago, according to John Seidl, director,
E&P research, for Dahlman Rose & Co.

Additional new Canadian oil production has put between 2.0-
and 2.4 million barrels of oil per day into the U.S. market, up from some 1.8
million a day five years ago, Seidl adds.

And the barely year-old Mississippi Lime oil and gas liquids
play in northern Oklahoma and southern Kansas has SandRidge Energy Inc. in an
arrangement with Plains All American Pipeline LP to ship out 150,000 barrels a
day. Meanwhile, Chesapeake Energy Corp. is in a deal with Semgroup Corp. and Gavilon
LLC to send out 140,000 a day, note analysts with Tudor, Pickering, Holt &
Co. Securities Inc.

Bottlenecks are growing, Seidl says, as Canadian oil meets
with North Dakota oil in trying to get to the U.S. Gulf Coast and both are running
into new Oklahoma oil production along the way.

“Producers in Canada and the Bakken are increasingly turning
to rail as a transportation option to move barrels,” Seidl says. “For example,
in the Bakken, the current capacity to get oil onto rail is 160,000 barrels per
day, but, by early 2013, that capacity is expected to increase to 527,000. Hess
Corp….expects to generate higher profits from railing crude to the Gulf Coast
than it currently receives from selling oil into the pipeline system. Anecdotal
reports from Canadian E&Ps suggest they are also using rail to get around the
pipeline bottlenecks, as they are working on adding capacity.”

Meanwhile, Canadian oil-sands producers who have been
counting on the Keystone XL project to get their oil to the Gulf Coast are
looking west, note the TPH analysts. Kinder Morgan Inc.’s TransMountain
Expansion (TMX) project will move an additional 300,000 barrels per day by 2016
to the West Coast, up from 300,000 a day currently. “TMX challenges Enbridge
Inc.’s larger Northern Gateway (pipeline) for Alberta-to-the-Pacific supremacy
as post-XL regulatory uncertainty increases interest in projects that utilize
existing pipes, like TMX,” the TPH team reports.

Seidl notes that Canadian oil is now fetching $10 less on the
market than U.S. onshore—that is, West-Texas-Intermediate-priced oil—which is
fetching $18 less than Gulf Coast or Brent-priced oil or nearly $30 less
combined. Meanwhile, railing oil from the oil sands of Alberta to the Houston
Ship Channel costs $10 to $14 a barrel.

Seidl says, “There appears to be an opportunity to narrow
that gap by arbitraging the differential; the aforementioned cost from Edmonton
to Houston suggests there should also be an arbitrage between WTI and Gulf
Coast pricing too. However, the mathematical arbitrage does not exist in
reality because of the shortage of rail cars.”

In early January, 19,376 North American railcars carried
petroleum products, he adds—“the highest weekly traffic ever for the commodity.”

Some relief to producers seeking to get their oil to the
highest-priced, Gulf Coast market will come this summer as the existing Seaway
pipeline that brings Gulf Coast oil to Cushing, Oklahoma, is reversed, moving
150,000 barrels per day to the Gulf Coast instead and as much as 400,000 a day
in 2013.

“Enbridge expects to bring on an additional pipeline from
Cushing to Houston in 2014, along with a new pipeline from Illinois to Cushing,
which would essentially open up capacity for Canadian crude to reach the Gulf
Coast. Another Enbridge project to reverse the flow of oil from Sarnia, Canada,
to Montreal by 2014 could also aid in reducing the differential between the
Midcontinent and the Gulf Coast. “However, North American oil production likely
will also grow sizable volumes during the same timeframe. Other future sources
of potential relief would come from approvals to build Keystone XL, Northern
Gateway and the TransMountain Expansion,” Seidl concludes.

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas
Investor This Week, A&D Watch, A-Dcenter.com,
UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.

President Obama devoted 6.5 full minutes to energy in his more than 70-minute, annual “State of the Union” address this evening. Several remarks were confounding, such as stating support of the U.S. natural gas industry yet for suspending tax breaks to oil companies: With rare exception, U.S. oil companies are natural gas companies. Also, these tax breaks—or “subsidies,” which is the nomenclature used by the anti-energy—are the same breaks provided to all U.S. manufacturers.

Also, Obama credits the federal government with inventing the U.S. shale-gas industry, while it is widely known that industry veteran George Mitchell did this with private-investment risk and during more than 20 years of prodding technology to make hard rock give up abundant gas.

Here is the excerpt of Obama’s address that pertains to energy.

“…And nowhere is the promise of innovation greater than in American-made energy. Over the last three years, we’ve opened millions of new acres for oil and gas exploration and, tonight, I’m directing my administration to open more than 75% of our potential offshore oil and gas resources. Right now, American oil production is the highest it’s been in eight years. That’s right, eight years. Not only that, last year, we relied less on foreign oil than in any of the past 16 years.

“But with only 2% of the world’s oil reserves, oil isn’t enough. This country needs an all-out, all-of-the-above strategy that develops every available source of American energy, a strategy that’s cleaner, cheaper and full of new jobs. We have a supply of natural gas that can last America nearly 100 years. And my administration will take every possible action to safely develop this energy. The experts believe this will support more than 600,000 jobs by the end of the decade—and I’m requesting all companies that drill for gas on public lands to disclose the chemicals they use because America will develop this resource without putting the health and safety of our citizens at risk.

“The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don’t have to choose between our environment and our economy. And, by the way, it was public research dollars over the course of 30 years that helped develop the technology to extract all of this gas out of shale rock, reminding us that government support is critical in helping business in getting new ideas off the ground.

“Now, what’s true for natural gas is just as true for clean energy. In three years, our partnership with the private sector has already positioned America to be the world’s leading manufacturer of high-tech batteries. Because of federal investments, renewal energy use has more than doubled and thousands of Americans have jobs because of it.

“When Bryan Ritterby (a lab technician with Energetx Co.) was laid off from his job making furniture, he said he worried that, at 55, no one would give him a second chance but he found work at Energetx, the wind-turbine manufacturer in Michigan. Before the recession, the factory only made luxury yachts. Today, it’s hiring workers like Bryan who say ‘I’m proud to be working in the industry of the future.’

“Our experience with shale gas—with natural gas—shows us that the payoffs from these public investments don’t always come right away. Some technologies don’t pan out. Some companies fail. But I will not walk away from the promise of clean energy. I will not walk away from workers like Bryan. I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here.

“We’ve subsidized oil companies for a century. That’s long enough. It’s time to end the taxpayer giveaways to an industry that rarely has been more profitable and (to) double down on a clean-energy industry that never has been more promising. Pass clean-energy tax credits; create these jobs.

“We can also spur energy innovation with new incentives. The differences in this chamber may be too deep right now to pass a comprehensive plan to fight climate change. But there is no reason why Congress should not, at least, create a clean-energy standard that creates a market for innovation.

“So far you haven’t acted. Well, tonight, I will. I am directing my administration to allow the development of clean energy on enough public land to power 3 million homes and I’m proud to announce that the Department of Defense, working with us, the world’s largest consumer of energy, will make one of the largest commitments to clean energy in history, with the Navy purchasing enough capacity to power a quarter-million homes in a year.

“Of course, the easiest way to save money is to waste less energy. So here’s a proposal: Help manufacturers eliminate energy waste in their factories and give businesses incentives to upgrade their buildings. Their energy bills will be $100-billion lower over the next decade and America will have less pollution, more manufacturing and more jobs for construction workers who need it. Send me a bill that creates these jobs.”

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.

“I think, eventually, the pipeline will be approved.”

The blowout WTI/Brent spread of 2011 has been evaporating—falling to $8 at year-end and at about $11 today—as global and North American oil-price dynamics continue to erupt. Iran is talking about closing the Strait of Hormuz, the U.S. Senate has put the Keystone XL project back on Obama’s “to answer” list and the reversal of the Seaway pipeline is under way.

What gives? We caught up with Andy Lipow, founder and president of Houston-based Lipow Oil Associates LLC, for some expert insight. Lipow has been in the hydrocarbon trading and refining business for more than 30 years, including with Europe-based powerhouse Vitol Group and with Amoco Corp., which is now part of BP Plc.

Oil and Gas Investor: Will the WTI/Brent spread evaporate?

Lipow: Well it’s narrowing and it will continue to narrow, depending on how much take-away capacity comes online out of Cushing over the next couple of years. My expectation is that we’re going to see some periods of narrowing followed by some periods of widening followed by periods of narrowing again as there are a lot of changes happening at different times in supply, demand and infrastructure.

Oil and Gas Investor: What created such a vast spread in the first place?

Lipow: It’s a reflection of a number of things. This past year, we had the conflict in Libya, which removed 1.6 million daily barrels light, sweet crude from the market. That was in conjunction with production problems in the North Sea as well as Kazakhstan and Azerbaijan. Meanwhile, here in North America, we have increasing production of crude oil from both Canada and North Dakota that is trying to make its way to refineries on the Gulf Coast. Well, there is currently no pipeline that goes directly from Cushing (Oklahoma) to the Gulf Coast, so we had to look for alternative routes of transportation, mainly rail and barges.

Oil and Gas Investor: It looked like we ended up with “stranded oil” right here in North America.

Lipow: In this case, I think of stranded oil is sort of like being in the middle of the desert with no means to get out. The oil is waiting for a ride. In North America, the oil already being produced is all moving to market. However, in many cases, it’s not coming out of the ground because the producers are waiting for logistics, meaning truck or rail or transloading facilities to come online. In that sense, you could say production is held back by the lack of take-away capacity. But there is certainly a market for the oil.

Oil and Gas Investor: So, there is yet more North American oil supply that is being held back, waiting for take-away?

Lipow: Well, you’re seeing production continue to increase and as infrastructure comes in, yes, oil production will increase.

Oil and Gas Investor: What encouraged ConocoPhillips to sell its half-interest in Seaway this fall?

Lipow: I think ConocoPhillips saw that Enbridge (Inc.) and Enterprise (Products Partners LP) was involved in a number of projects—Monarch, Double E, Wrangler—that were to bring more oil to the Gulf Coast. ConocoPhillips probably thought at least one of these projects would happen and, when it did, it would decrease the value of Seaway to a potential buyer.

Oil and Gas Investor: Without the reversal of Seaway, ConocoPhillips’ Midcontinent refineries were in better fiscal shape for using WTI-priced crude than the Gulf Coast refineries that use Brent-priced crude?

Lipow: They had a raw-material advantage versus Gulf Coast refiners that are buying crudes linked to Brent.

Oil and Gas Investor: The Keystone XL amendment to the payroll-tax-reduction bill that cleared Congress just before Christmas requires Obama answer on Keystone within 60 days, which would be by late February. Do you think Obama will actually approve it then?

Lipow: I think, eventually, the pipeline will be approved. Of course, there are a lot of political issues around Keystone—from the route to the environmental groups that are against anything that would encourage oil-sands production. But now he has another issue facing him and that is the rhetoric in the Middle East.

Oil and Gas Investor: By Iran?

Lipow: Yes, the threat of the closure of the Strait of Hormuz that would affect one sixth of the world’s oil supply.

Oil and Gas Investor: Anything a WTI/Brent-spread enthusiast should know?

Lipow: The Brent/WTI movement is a result of increases in production and a logistics and distribution system that has been inadequate to move onshore North American crude oil to the refining centers on the Gulf Coast. As that distribution system improves, we’re going to see the Brent/WTI spread change.

Oil and Gas Investor: Is even more midstream capacity or direction of take-away needed based on where production is coming online in North America?

Lipow: If you look at over the next five to 10 years, as oil production increases, we will need more infrastructure.

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.

The industry posted yet more new horizontal oil and gas-liquids plays.

As 2011 has come to a close, here’s a list of some of the top U.S. oil and gas E&P-industry stories of the past year. Add yours by e-mailing ndarbonne@hartenergy.com.

(+) Mississippi Lime. This horizontal oil play in northern Oklahoma and southern Kansas exploded onto the E&P scene in the spring of 2011 with SandRidge Energy Inc. reporting it had amassed nearly 1 million acres over the Chester, Manning, Meramec and Osage mix of limestone, weathered chert or chat, and dolomite. Chesapeake Energy Corp. later reported it had amassed, well, yet more. By year-end Spanish energy giant Repsol YPF bought into SandRidge’s play in a $1-billion joint venture: $250 million in cash upfront and $750 million in drilling carries.

(+) Utica Shale. Chesapeake Energy Corp. and partner EV Energy Partners LP/EnerVest Management Ltd. reported results in September of an initial four horizontal wells into Ohio’s Utica shale, proving gas-liquids production in that state. Four weeks later, Chesapeake had a letter of intent with a still-to-be-identified company for a $3.4-billion joint venture within its Utica leasehold. Chesapeake and EV are working now to prove the oil window of the play. Ohio Gov. Kasich and team are, well, elated.

(-) The New York Times “Hit Piece.” Both industry and non-industry members were apoplectic this summer about an NYT article that claimed scientifically accepted principles in determining future potential of shale-gas production to be a hoax. This was based mostly on old e-mails among a few critics; there was no industry comment. NYT public editor Arthur Brisbane took issue as well with how the article was handled, concluding a couple of weeks later, “My view is that such a pointed article needed more convincing substantiation, more space for a reasoned explanation of the other side and more clarity about its focus.”

(-, +) The Keystone XL Postponement. President Obama shocked Republicans and Democrats alike in November when announcing he would postpone a decision on permitting the Keystone XL Canada-to-the-Gulf-Coast oil-pipeline project until after the 2012 presidential election. The Senate answered 89-10 shortly before Christmas with an amendment to Obama’s payroll-tax-reduction-extension bill that requires he make a decision within 60 days. After some foot-dragging and tongue-wagging, the House concurred with the amended bill before cutting out for the holidays. The amendment’s authors—Senators Lugar (Indiana), Hoeven (North Dakota) and Vitter (Louisiana)—say Obama can only reject the project if he deems trade with Canada to not be in U.S. interest. We’ll see if there are any rabbits left in the White House hat.

(+) Three Forks 2 Horizontal Discovery. Continental Resources Inc., which founded the horizontal Bakken oil play in 2004 and the horizontal Upper Three Forks (Bench 1) play in 2008, made the horizontal Three Forks Bench 2 discovery in the spring of 2011 with its Charlotte 2-22H. The well tested 1,140 BOE per day, mostly oil, from a 9,700-foot lateral after 30 frac stages on a 26/64-inch choke. The company is determining now whether Three Forks 2 produces independent of Three Forks 1; if so, the potential for oil production from the Bakken petroleum system will grow yet again.

(+) Louisiana Eagle Ford Oil Discovery. Going with almost no notice amongst media or industry analysts, privately held Indigo Minerals LLC reported the horizontal Louisiana Eagle Ford discovery in early December. The Bentley Lumber 34H #1 well in central Louisiana flowed 543 barrels oil equivalent (80% light, sweet oil) during a 24-hour test period. The balance of the BOEs was 1,520-Btu, 11-gallon-per-Mcf gas liquids. It’s planning more of these wells in 2012 and is seeking a joint-venture partner.

(+, -) The WTI/Brent Spread. As onshore U.S. oil production became congested at Cushing, Oklahoma, the price differential between WTI (or Nymex) and Brent (or seaborne oil) soared to as much as $25 in Brent’s favor. The spread has narrowed now to about $8. With oil above $90 for most of 2011, onshore U.S. producers weren’t too disadvantaged; their play economics still worked fine. But the spread wreaked havoc on refiners and fuel retailers—those on contract to buy seaborne crude versus those using cheaper WTI-priced oil. In the Northeast U.S., Brent-fed refineries were closed or have been pegged for closure.

(+) Tuscaloosa Marine Shale. Devon Energy Corp. revealed in May that it was putting its super-independent E&P might behind the bit in this oil-filled, sloughing shale in eastern Louisiana and southwestern Mississippi from which many E&Ps have tried to produce commercially during the past 50 years and failed. The horizontal attempts cost $12 million apiece or more, but the prize upon figuring out how to keep the hole open is large: This shale may contain some 7 billion barrels of oil.

(+) Brown Dense. Southwestern Energy Corp., the founder of the horizontal Fayetteville shale-gas play in north-central Arkansas, revealed in late July that it had put together more than 400,000 acres over the Lower Smackover or Brown Dense formation that is believed to be the source of decades of Upper Smackover oil production. It hasn’t revealed results from two wells in the rock but confirms this: It’s oil.

(+, -) Exporting U.S. Natural Gas. While Washington won’t commit to using abundant new U.S. natural gas supply at home, the Department of Energy permitted Cheniere Energy Partners LP in May to export gas from Cheniere’s Sabine Pass, Louisiana, LNG (liquefied natural gas) receiving terminal to any country with which the U.S. does not prohibit trade. The actual construction of the liquefaction facilities is in the FERC-clearance process now. Washington’s green light to exporting U.S. gas is a win for free markets and monetization of assets to their greatest potential, while also a sad statement on its interest in using this high-Btu, clean and abundant resource at home.

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.

Energy-company stocks capture investor attention despite year-end portfolio distractions.

Energy-company IPOs have dominated the new-stock scene this month, launching seven of the 13 new U.S.-exchange listings through Dec. 15. The six others capturing investor interest as 2011 wanes and many portfolios are being righted for tax purposes are a social-gaming-service, fashion house Michael Kors Holdings Ltd., a REIT, a social-business software firm and two healthcare-industry operators.

Among the energy IPO pricings this month, onshore-U.S.-focused E&Ps and pipeline operators whet stock-buyers’ appetites.

–Inergy Midstream LP (NYSE: NRGM) priced 16 million units at $17 each. The new natural gas storage and transportation company is a product of John Sherman’s propane-distribution-focused Inergy LP, based in Kansas City, Missouri.

–Randy Foutch’s Laredo Petroleum Holdings Inc. (NYSE: LPI) sold 17.5 million shares at $17 each. Tulsa-based Laredo focuses on oil and gas E&P in the Permian Basin and Midcontinent.

–Michael Starzer’s Bonanza Creek Energy Inc. (NYSE: BCEI) sold 10 million shares at $17 each. Denver-based Bonanza owns oil-producing assets in the San Joaquin Basin of California.

–Randy Olmstead’s Mid-Con Energy Partners LP (Nasdaq: MCEP) sold 5.4 million units at $18 each. Tulsa-based Mid-Con focuses on oil and gas E&P in the Midcontinent.

–Antonio Sanchez III’s Sanchez Energy Corp. (NYSE: SN) sold 10 million shares at $22 each. Houston-based Sanchez has leasehold over Eagle Ford shale in South Texas, over Haynesville in northwestern Louisiana and in Lewis and Clark, Meagher, and Cascade counties, Montana.

–John Weinzierl’s Memorial Production Partners LP (Nasdaq: MEMP) sold 9 million units at $19 each. Houston-based Memorial operates oil and gas properties in South Texas and East Texas.

–Norman Szydlowski’s Rose Rock Midstream LP (NYSE: RRMS) sold 7 million units at $20 each. Tulsa-based Rose Rock owns oil gathering, transportation, storage and marketing assets in Colorado, Kansas, Montana, North Dakota, Oklahoma and Texas.

These IPOs follow several November energy-stock pricings.

–Jonny Brumley’s Enduro Royalty Trust (NYSE: NDRO) sold 13.2 million units at $22 each. Austin, Texas-based Enduro buys net-profits interests in Brumley’s Enduro Resource Partners LLC properties in Texas, Louisiana and New Mexico.

– Eric Mullins and Charles Adcock’s LRR Energy LP (NYSE: LRE) sold 9.4 million units at $19 each. Houston-based LRR has 30 million BOE of proved reserves in the Permian Basin, Midcontinent and Gulf Coast.

–Chesapeake Energy Corp.’s Chesapeake Granite Wash Trust (NYSE: CHKR) sold 20 million units at $19 each. It holds interests in production from a portion of Chesapeake’s Granite Wash-play leasehold in the Anadarko Basin.

–Christian Beckett’s Pacific Drilling SA (NYSE: PACD) sold 6 million shares at $8.25 each. Houston-based Pacific operates ultra-deepwater drillships.

Prior to pricings this week, Gabriele Sorbara, vice president, E&P research, for Caris & Co., forecast, “We believe these transactions will be well received by the market, given their exposure to oily plays, including the Permian Basin, the Eagle Ford shale and Niobrara, to name a few.”

Foutch’s Laredo Petroleum Holdings is particularly eye-catching, “given its exposure to the horizontal Wolfcamp/Cline shales in the Midland Basin. While Laredo’s IPO pricing and valuation should be positive for the Permian players—especially the horizontal Wolfcamp players—we believe this week’s…flurry of IPO activity would bring excitement to the entire E&P sector into year-end.”

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.

Some participants believe WTI may resume premium pricing.

The WTI/Brent price spread will narrow to between $5 and $10 in 2012, according to 62% of responses from 159 energy-stock buyers and E&P executives in early December in the quarterly “Bernstein Energy Investor Sentiment Survey.”

Another 11% believe the spread will fall to between $0 and $5 in the coming year; 3% believe WTI will exceed that of Brent, possibly by as much as $5, report Bernstein Research senior energy analysts Bob Brackett and Scott Gruber. Meanwhile, 22% believe the spread will range in an average of between $10 and $15, and 3% believe it will be between $15 and $20.

The results are remarkably different than investor sentiment in early September, when more than 70% forecast a 2012 spread of between $10 and $25. A few even expected it to exceed $30.

“With plans of a Seaway (pipeline) reversal announced since our last survey, 62% of respondents now believe the spread will average $5 to $10 per barrel in 2012, with $10 to $15 being the next-most-common response. Only 3% see the spread averaging over $15.”

As for 2014, most of the survey participants believe the WTI/Brent spread will continue to persist to some degree with 76% expecting a range of $0 to $10; however, 14% believe the price of WTI will return to a premium over that of Brent.

“We continue to believe enough pipeline takeaway capacity will be installed or reversed by the end of 2013, and see little to justify a spread in 2014,” Brackett and Gruber report. They note that, until the WTI/Brent blowout this year, the quarterly survey didn’t query participants for their thoughts on the spread.

“We note that our survey has historically focused on WTI crude prices, not Brent, so, to address the current, but shrinking, dislocation, we’ve once again included a question about the spread this quarter.”

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.