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US oil production grew more in 2012 than in any year in the history of the domestic oil industry back to the Civil War

Mark J. Perry | January 20, 2013, 12:48 am

From Saturday’s WSJ:

U.S. oil production grew more in 2012 than in any year in the history of the domestic industry, which began in 1859, and is set to surge even more in 2013. Daily crude output averaged 6.4 million barrels a day last year, up a record 779,000 barrels a day from 2011 and hitting a 15-year high, according to the American Petroleum Institute (API), a trade group. It is the biggest annual jump in production since Edwin Drake drilled the first commercial oil well in Titusville, Pa., two years before the Civil War began (see chart above).

The U.S. Energy Information Administration predicts 2013 will be an even bigger year, with average daily production expected to jump by 900,000 barrels a day. The surge comes thanks to a relatively recent combination of technologies—horizontal drilling and hydraulic fracturing, or fracking, which involves pumping water, chemicals and sand at high pressures to break apart underground rock formations.

Together, they have unlocked deposits of oil and gas trapped in formations previously thought to be unreachable.

That has meant a resurgence of activity in well-established oil regions, such as West Texas’s Permian basin, as well as huge expansions in areas that had been lightly tapped in the past, such as North Dakota’s Bakken shale region. The Bakken has gone from producing just 125,000 barrels of oil a day five years ago to nearly 750,000 barrels a day today.

The benefits of the surge in domestic energy production include improving employment in some regions and a rebound in U.S.-based manufacturing.

MP: Actually, the API’s estimate of a 779,000 barrel per day (bpd) increase in domestic oil last year is pretty conservative compared to year-end comparisons of EIA data for weekly US oil production. Compared to oil output at the end of 2011 (5.846 million bpd), US oil production increased by 1.139 million bpd last year to almost 7 million bpd during the last week of December 2012. Alternatively, using the EIA’s four-week production averages show an increase of 1.063 million bpd from December of 2011 to December 2012. The reason that the yearend comparison shows a much higher annual increase in US oil production (about 1 million bpd vs. 779,000 bpd) is that domestic oil production accelerated during the second of last year – crude oil output increased 14.6% during the second half of 2012 compared to the 4.2% increase during the first six months.

The record increase in oil output last year reminds us the US oil and gas industry continues to be at the forefront of the otherwise sub-par economic recovery, and without that sector’s strong growth in output and jobs, the economy’s sub-par performance would be even more lackluster. The 1 million bpd increase in domestic oil production last year has delivered a powerful energy-based economic stimulus to the economy, creating thousands of new direct, shovel-ready jobs in oil and gas activities, and igniting many spinoff business and indirect jobs throughout the oil and gas supply chain like the “oil-by-rail shipping boom.” The future of the US economy over the next few years looks a lot brighter because of America’s surging domestic energy production.

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Deep Down Receives Umbilical Carousel Order (USA)

Deep Down, Inc., an oilfield services company specializing in complex deepwater and ultra-deepwater oil production distribution system support services has been successful in its proposal to a major international umbilical manufacturer for the manufacture, installation and commissioning of a portable umbilical carousel.

The project has an estimated value of $4 million in revenue to Deep Down and is scheduled for delivery in the second quarter of 2013, with procurement of long lead items commencing this month.

Ron Smith, Chief Executive Officer of Deep Down, Inc. stated, “We are delighted with this opportunity. We currently have outstanding quotes in excess of $30 million for our carousel design and this project further recognizes that we are a leading provider of innovative umbilical solutions to the oil and gas industry.”

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Drop in energy prices lowers the boom in Texas oil patch

August 1, 2012
by Zain Shauk

Falling oil prices halted a 30-month growth spurt in Texas’ oil and gas industry boom in June, a new industry report shows.

The Texas Petro Index, which has measured job numbers, rig activity, production totals, wells completed and other related figures across nearly two decades, dropped for the first time since a rush to draw oil from shale caused a surge of drilling in Texas.

The index fell to 270.4 in June from its recent peak in May of 271.5, which was the highest since rapid industry growth pushed it to a record 287.8 in October 2008.

A trend of declining oil prices added to already low natural gas prices to push the Petro Index down, said Karr Ingham, an economist for the Texas Alliance of Energy Producers, which released the study Tuesday.

He said the number of active oil and gas rigs in Texas has fallen further in recent weeks to 900, the lowest level since September 2011, as companies have reassessed expensive operations that are no longer yielding high returns.

Not coincidentally, he said, oil prices have fallen from near $100 in early 2012 to about $79.08 in June. Benchmark crude lost $1.72 Tuesday to end the day at $88.06 per barrel.

Companies may have grown more cautious about aggressive drilling operations, but the leveling off doesn’t necessarily mean a bust is on the horizon, said Michelle Michot Foss, chief energy economist for the University of Texas Center for Energy Economics.

“They’re trying to get a feel for what the price trajectory could be and it’s affecting decisions,” Foss said. But, she added, “I think you would need a much, much more substantial fall in prices to see a really serious drop in activity.”

Contraction ahead?

Texas employment in the fossil-fuel exploration and production industry hit a record of 251,600 in June, Ingham said. But he noted some indicators that point to possible contraction ahead. Texas crude oil production is at its highest level since 1999, but the weakening world economy is pushing demand down, he said.

That has left resource prices languishing.

The recent 30-month rise in the Texas Petro Index was almost exclusively fueled by oil drilling because low prices have curtailed natural gas production relative to its levels in previous expansions.

The monthly average value of Texas oil and gas production exceeded $9 billion in 2008 but has been around $6 billion during the most recent peak in the index, Ingham said.

During the current shale-driven boom, however, employment has soared well above levels in October 2008, he said.

If declining prices bring about a further reduction in drilling activity, Ingham said, “employment will ultimately be affected and there’s of course no way it could not be.”

European crisis

Turmoil in Europe and a weakening domestic economy have also affected the industry by depressing oil prices, Ingham said.

“All of these terrible things happened in the second quarter and sort of threw a little bit of rain into our parade,” he said.

But Texas oil prices and drilling activity may not be as influenced by broad economic trends as they may have been by recent pipeline developments, said Ed Hirs, a professor of energy economics at the University of Houston.

A recent increase of pipeline capacity bringing oil to the U.S. Gulf Coast may also be pushing prices down, he said.

“Right now you’ve got more domestic supply coming online than the country is accustomed to handling,” Hirs said.

The alliance’s index dates to 1995, when the index was set at a base level of 100.

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USA: Schlumberger, NOV Complete Wilson Transaction

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Schlumberger Limited has completed the sale of its Wilson distribution business to National Oil well Varco, Inc.

Terms of the all-cash transaction, which remains subject to customary closing conditions, including regulatory approval, were not disclosed.

Founded in 1921, Wilson is a leading distributor of pipe, valves and fittings as well as mill, tool and safety products and services to the international energy business and to other industrial customers. The company manages a distribution business of approximately 200 sales and operations locations across the United States with a growing presence in other key international geographies. Wilson employs approximately 2,500 employees as a standalone Schlumberger business unit.

National Oilwell Varco is a worldwide leader in the design, manufacture and sale of equipment and components used in oil and gas drilling and production operations, the provision of oilfield services, and supply chain integration services to the upstream oil and gas industry.

Additionally, Schlumberger has committed to divest the remaining portion of its distribution business by agreeing to support NOV’s previously announced proposed acquisition of all outstanding shares of CE Franklin Ltd.  for CAD$12.75 in cash per share. Schlumberger owns 9,729,582 common shares of CE Franklin, or approximately 56% of CE Franklin’s outstanding common shares.

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Houston,Texas: TWMA Opens New Manufacturing Base in Houston (USA)

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TWMA, a leader in integrated drilling waste management and environmental solutions, has recently launched its U.S. expansion with the opening of the company’s newest manufacturing base in Houston. The new facility will allow TWMA to manufacture American-made equipment and meet growing demand for its services in the United States and around the world.

“This new office has the potential to change the dynamics of the entire company,” said Ian Nicolson, TWMA’s Vice President of the Americas. “We’re bringing a whole new range of services and technologies to the U.S. oil and gas industry. We can save operators $30 to $40 thousand dollars per well by handling and treating their drilling wastes with our specialized waste management solutions.”

Demand for TWMA’s waste management solutions is booming. The company has already won several U.S. contracts with oil and gas operators, which has helped fuel the expansion.

Operating both offshore and onshore, TWMA handles and treats drill cuttings and associated oil industry wastes. Using state-of-the-art technology, drilling wastes are recovered, recycled and reused, recovering significant operator costs whilst minimizing environmental impact.

While initial plans focus primarily on expanding in the U.S. market, having a Houston-based facility will allow TWMA to extend its reach into Canada and South America, Nicolson said.

Through the Houston office, TWMA will increase the production capability for its entire range of waste management solutions to service the U.S and international markets. This will include the TCC RotoTruck and TCC RotoMill, which are currently utilized globally to thermally process drilling wastes onshore and offshore, and supporting equipment including vacuum systems, dryers and TWMA’s cuttings collection and distribution system (CCDS).

TWMA has been operational in the United States since 2008, but the new Houston facility will be the company’s first regional manufacturing site. Currently, 20 employees have been hired to work at the new facility. TWMA expects to triple this number by July and plans to have 200 to 300 employees hired in the next 24 months.

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Swiber Lands Offshore Construction Job in Gulf of Mexico

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Swiber Holdings Limited, a world class integrated construction and support services provider to the offshore industry, announced that it has secured another sizeable contract through a local collaboration with Dragados Offshore (“Dragados”), totaling approximately US$273 million for offshore construction work in the Gulf of Mexico.

This latest contract win awarded by an oil major from the Gulf of Mexico, entails offshore construction works for the procurement, transportation, and installation of pipeline in the Gulf of Mexico. Work for this project will commence  immediately this year and will carry on into 2013.

Commented Mr. Francis Wong, Group Chief Executive Officer and President of Swiber, “Our strategic collaboration with Dragados enables both companies to provide a consolidated source of expertise and offer turnkey solutions to the offshore oil and gas industry. This puts us in a strong position to bank on the vast opportunities in the Gulf of Mexico region.”

With this third consecutive contract announcement in less than three months of 2012, Swiber’s order backlog continues to strengthen with steady growth.

This has come in quick succession to the recent US$36 million worth of vessel charter contract wins in the Gulf of Mexico and Southeast Asia. Prior to that, the Group has secured a US$216 million contract early last month, for offshore construction projects and vessel chartering services in Southeast Asia and South Asia.

Mr. Wong said, “This is indeed a winning season for us as we continue to secure contracts of larger values, which is a strong reflection of the confidence and trust that major oil companies have on Swiber’s ability in handling complex projects.

“Geographical diversification will remain the cornerstone of our growth path as we further strengthen our foothold in the offshore oil and gas industry in the region. This, coupled with our vessel fleet enhancements carried out in the past few years will enable us to concurrently manage our offshore projects while securing more contract wins.

“We have continued to break into new frontiers – new markets, new customers, new records in terms of size of contracts, revenue and order book. We have a strong order book visibility with offshore projects spread out over the next couple of years. This will clearly give us a solid footing to navigate forward in the exciting offshore oil and gas construction industry.”

Infield Systems has forecasted upstream capex in the Gulf of Mexico to increase by as much as 38% year-on-year in 2012 as operators push forward with development plans and execute offshore projects. Offshore capex is forecasted to increase from $9 billion in 2011 to over $12.5 billion per annum by 2015.

Concluded Mr. Wong, “Tendering activities in the offshore oil and gas industry is gaining traction, with vast opportunities appearing in the Gulf of Mexico. As an internationally recognised, world class company, with proven track record of delivering consistent and superior quality of products and services, Swiber is ready to support the region’s growing offshore exploration and field development market.”

With a slew of new contract wins, key strategies in place, strong order book visibility, and robust opportunities in the Southeast Asia, South Asia, Middle East and Gulf of Mexico regions, Swiber has firmly entrenched its position in the big league and is set to take on bigger ventures and capture fresh and exciting opportunities in the offshore oil and gas arena.

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Recent Articles

The oil industry’s plan to lower gas prices

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By Steve Hargreaves @CNNMoney March 23, 2012: 5:20 AM ET

NEW YORK (CNNMoney) — The oil industry recently laid out a set of proposals it believes will instantly lower gasoline prices.

The proposals call for more domestic oil production, fewer environmental regulations on refineries and fuel, and for not raising taxes on the industry. They’re basically what the Republican presidential candidates are calling for.

But analysts say those ideas will do little to lower gas prices in the short term. Here’s why:

More drilling: The industry has long held that this is key to lowering prices, and “unlocking America’s energy potential” is a theme all the Republican candidates are touting.

The industry has studies saying that if it was allowed to drill off both the East and West coasts, on all federal land that isn’t a national park and in Alaska’s national wildlife refuge it could produce another 10 million barrels of oil a day by 2030 — double the nation’s current oil output.

Eighteen years is a long time to wait for gas prices to come down. But the industry says that if Obama merely announced such a plan oil prices would drop overnight in anticipation of this new production.

“Markets are driven by expectations,” Jack Gerard, president of the American Petroleum Institute, said on a recent conference call.

Saudi Arabia can’t save us from high oil prices

Gerard noted that oil prices fell $16 in the two days after George W. Bush lifted a moratorium on drilling off the coasts in 2008, a moratorium that was effectively reinstated after BP’s (BP) Gulf of Mexico disaster.

But oil traders are skeptical.

“Just because a policy is announced doesn’t mean it can be easily or quickly attained, and the markets will discount that,” said Addison Armstrong, director of market research at the brokerage Tradition Energy.

Those against more drilling note that U.S. oil production has increased by about 15% since Obama took office, and prices have only gone up.

Obama himself likes to take credit for this production increase, although actual federal acreage available for drilling is down slightly from the Bush administration.

The extra production comes mostly from private land and is spurred by higher prices, new technology and the expanded use of hydraulic fracturing.

Known as fracking for short, the process is highly controversial as many fear it is contaminating the ground water. Yet Obama has allowed it to continue mostly unfettered — and has taken flack from his left flank as a result.

In the medium term it’s hard to say what impact increased production from the United Sates would have on oil prices.

Ten million barrels a day is a lot of oil, though critics say the industry would never be able to generate that much and note the potential high environmental costs of drilling everywhere.

Plus OPEC might simply cut that amount of production to keep prices high.

Either way, it’s unlikely more drilling now would lower gas prices anytime soon.

Fewer regulations: Cutting regulations is another mantra of the American Right, and more regulations are indeed looming for the oil and gas industry.

It’s thought that Obama’s Environmental Protection Agency will propose new standards designed to cut air pollution and global warming on both refineries and fuels.

The oil industry says the new fuel standards alone could add anywhere from six to nine cents to a gallon of gas.

Yet not implementing those regulations wouldn’t lower the price of gas now — analysts aren’t expecting them to be put in place until after the election.

Plus, it’s uncertain they will really cost that much.

“Historically, the cost impacts [of additional regulations] have been estimated to be higher than they really are,” said Joseph Stanislaw, founder of J.A. Stanislaw Group, an energy and investment advisory firm.

Less taxes: As any good lobby group would, API has used every chance it gets to rally against proposals from the Obama administration that would eliminate up to $4 billion a year in tax breaks for the oil industry.

“No economist in the world will tell you gas prices can be reduced by increasing taxes,” said API’s Gerard.

Speculators are driving up gas prices – Opinion

Eliminating the tax breaks has been opposed by nearly every Republican politician as well.

But while eliminating those tax breaks might be bad for oil company shareholders, it’s hard to see how they would have much of a bearing on raising or lowering gas prices.

What is driving prices: Fundamentally, what politicians on both sides of the isle are missing is the fact that gas prices are not being driven by domestic policies.

They are being driven by oil prices, which are in turn rising mostly on fears over a confrontation with Iran.

“There’s a lot of oil out there right now, but people are scared,” said Stanislaw. “This is largely outside of the control of the United States.”  To top of page

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RXT to Conduct OBC Survey in Middle East

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The multi-component seismic company Reservoir Exploration Technology ASA (RXT) has received a letter of award from an oil company for an ocean bottom cable survey in the Middle East.

Formal agreement will be entered into. The survey is scheduled to commence during 2012 and is estimated to take 13 months.

The estimated contract value is USD 104.5 mill.

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