In Oil & Companies News 29/07/2016
Anadarko Petroleum and Hess Corporation see a $60/b crude oil price as sufficient to begin accelerating activity, the pair said in separate conference calls.
And the companies’ top executives said they are looking ahead to an eventual industry recovery, although they continue to lower costs and look for ways to economize in a still-low price climate.
For Anadarko, global demand drivers appear strong enough to foresee $60/b going into next year, with US production likely bottoming at 8 million b/d of crude, company CEO Al Walker said.
“A sustained $60/b oil price is likely to emerge as we move into 2017 [which] will provide the necessary cash margins and cash … improvements to encourage us to accelerate activity,” Walker said.
“We think the fundamentals are there to sustain” that price level next year, he added.
At the same time, Walker foresees global demand growth at 1.2 million-1.4 million b/d per year through the rest of the decade, which will help boost crude prices.
As for Hess, it has been driving down operational costs this year which has resulted in a lower-than-projected 2016 capital budget by $300 million, to $2.1 billion, Hess COO Greg Hill said.
The company is focused on “maximizing value, not volume,” and has reduced its drilling program to levels that cover cash flow and other obligations at current low crude prices, which have dropped to the low $40s/b, Hill said.
“When oil prices approach $60/b, we’ll begin to ramp up activity, starting with the Bakken Shale,” he said.
As the price recovery is sustained, Hess will resume activities in the Gulf of Mexico, where Hess has many attractive drilling targets, and also the Utica Shale in Ohio, he added.
In the second quarter, Hess’ total production averaged 313,000 b/d of oil equivalent, below guidance of 320,000-325,000 boe/d. That compares to 350,000 boe/d in Q1 and 391,000 boe/d in Q2 2015.
TUBULAR BELLS VALVE ISSUES
During the quarter, the company-operated Tubular Bells field in the deepwater Gulf of Mexico experienced further downtime to replace a second defective subsurface safety valve, as well as extended planned shutdowns. There were also extended planned shutdowns in Q2 at Conger, another US Gulf deepwater field, as well as a mechanical issue at that field, and the Valhall field offshore Norway.
And in July, a third safety valve at Tubular Bells failed and was found defective, Hill said.
As a result of the Tubular Bells and Conger issues, Hess lowered full-year net production to 320,000 boe/d, down from 340,000 boe/d, Hess officials said.
“We’re actively pursuing legal claims against the vendor who provided the defective valves at Tubular Bells,” Hill said, adding the vendor was oilfield services giant Schlumberger.
The valve failure related to quality control and some components in the valve.
In its legal suit, Hess will ask Schlumberger for “cost of the replacement valves, the cost of remediation work, lost profits due to downtime and all the attorney’s fees,” Hill said.
In addition, net production at Hess’ Bakken Shale operation in North Dakota and Montana averaged 106,000 boe/d in Q2, compared to 119,000 boe/d in the same year-ago quarter, reflecting the company’s reduced drilling program.
Hess in Q2 reduced Bakken well drilling and completion costs by 14% over the past year to an average $4.8 million/well, although it raised the number of stages — intervals between hydraulic fractures — to 50 from 35, which has delivered at 15%-20% uplift in initial production rates, company CEO John Hess said.
Hess expects 2016 Bakken production to average 100,000-105,000 boe/d.
WILL DROP BAKKEN RIG
The company is running three Bakken rigs but will drop one in August.
“We do not believe accelerating production or drilling up our best locations in this current low price environment is in the best interests of shareholders,” the CEO said.
The Bakken can generate attractive returns at current prices but “we’ll increase activity there when oil prices approach $60/b,” he said.
Hill said the company is launching conversations with onshore US oil service and equipment vendors to lock in current low prices before the recovery pushes them back up.
Also, two weeks ago ExxonMobil spudded Skipjack, a well offshore Guyana located 25 miles northwest of Liza-2, an appraisal unveiled last month of an earlier discovery in that country.
ExxonMobil and partner Hess have called Liza a world-class discovery with estimated recoverable resources of 800 million-1.4 billion boe. Liza-2 has high-quality, 32-degree API crude, ExxonMobil has said.
Pre-development activities are underway for the field, John Hess said, adding it is thought to offer “very attractive economics.”
Hess will likely have Skipjack results by its Q3 conference call in October, he said.
For Anadarko, average daily oil sales volumes in Q2 fell 6% sequentially to 296,000 b/d as the company’s stated strategy of keeping drilling to a minimum owing to low crude prices gained further traction.
Year-on-year oil volumes were off nearly 7%, from 318,000 b/d in the April-June 2015 period.
Total Q2 sales volumes, including natural gas and gas liquids, were 792,000 b/d of oil equivalent, down 4% sequentially and down 6% from the same period in 2015.
Source: Platts
