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An OPEC deal, and a celebration in the U.S. shale fields

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Written by Jennifer Hiller at the San Antonio Express-News

Click HERE to Read the Article by the Publisher.


A historic deal in Vienna to trim oil production sent prices soaring Wednesday, with the companies that work in the in the remote shale fields of South Texas and West Texas ending up as some of the biggest winners.

It was the first deal by the Organization of the Petroleum Exporting Countries to restrict oil production since late 2008, when the global economy was teetering on the brink of a depression and the international oil cartel agreed to cut production to prop up collapsing prices. Russia, which is not an OPEC member and has resisted calls to cut, said it would trim production, too.

The deal would remove about 1.2 million barrels per day off the world market by January — the rough equivalent of taking the entire Eagle Ford Shale in South Texas offline, or half of the Permian Basin in West Texas and eastern New Mexico.

No one knows if the new OPEC deal will stick in the coming months. OPEC countries have a long history of producing more than their stated quotas and don’t publish reliable production data, but the markets went into champagne-popping mode anyway on the news Wednesday.

The deal immediately boosted oil prices. The international benchmark Brent oil rose 9 percent to close above $50 per barrel. The U.S. benchmark West Texas Intermediate was up more than 8 percent for the day, to $48.98.

Share prices of many publicly-traded U.S. shale drillers also soared on the news. Irving-based Pioneer Natural Resources rose to $191.04, up 10 percent. Houston oil producer ConocoPhillips rose nearly 10 percent, to $48.52. The oil field service giant Halliburton, also in Houston, was up more than 11 percent for the day, to $53.09.

At the annual San Antonio awards breakfast for the industry group that includes the Eagle Ford Shale’s biggest companies, the South Texas Energy & Economic Roundtable, the crowd broke into applause when the OPEC deal was announced.

“Congratulations, producers,” Haley Curry, director of external affairs for the group, told the audience, before she added in a 1980s movie reference to a famous game of chicken.

“It’s like that scene in ‘Footloose’ where the tractors are going at each other. We want to be Kevin Bacon,” Curry said.

Much has been made about the showdown between OPEC, the world’s traditional swing producer, and the upstart U.S. shale producers, who have added 5 million daily barrels to world production in a handful of years.

Both OPEC and U.S. producers have suffered during the bust in oil prices, which started in late 2014 after oil peaked at $107 that summer. Oil’s roller coaster ride down started in earnest around Thanksgiving 2014 when OPEC met and declined to cut production. Instead, member countries pumped more and started to compete with each other for market share.

Since then, Saudi Arabia has been spending down its financial reserves. Venezuela has been on the verge of economic collapse, with food shortages and electricity blackouts. In Texas, more than 100,000 energy workers have lost jobs since late 2014. North Dakota lawmakers sliced 10 percent from their budget this year. Alaska’s governor cut in half the annual oil dividend that goes to residents.

The bust hit hard in South Texas, where the once high flying Eagle Ford had 200 drilling rigs hunting oil and gas at the start of 2015, but now has 38 active rigs. Oil production has dipped from 1.7 million barrels daily in March 2015 to 978,000 this month, the biggest decline of any U.S. shale field.

Meanwhile, attention — and money — has focused on the Permian Basin in West Texas and eastern New Mexico, an immense and historic behemoth of an oil field, now pumping around 2 million daily barrels.

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But Omar Garcia, president and CEO of STEER, said the Eagle Ford isn’t finished yet.

The University of Texas at Austin said this fall it expects 100,000 wells in the Eagle Ford, far more than the roughly 17,000 wells drilled so far, and said there was 10 billion barrels of oil that could be recovered at today’s prices.

“Please know there’s a lot of activity left,” Garcia said to a roomful of Eagle Ford operators, services companies and local officials at the Pearl Stable.

The Texas oil fields already have been in an increasingly better mood with tentative signs of recovery, including a small bump in the number of drilling rigs at work.

Sean Strawbridge, deputy executive director and COO for the Port of Corpus Christi Authority, gave the keynote address at the STEER breakfast and said he hoped that the incoming Trump administration would provide funding to help deepen the port from 45 feet to 52 feet, which would allow it to handle larger vessels. The project has been approved by Congress but never been given the federal share of the estimated $350 million in construction costs. “It goes to the Office of Management and Budget and dies,” Strawbridge said.

The Corpus Christi port has become a key player in moving oil out of the Eagle Ford. In 2010 it had outbound shipments of just 245,000 barrels of oil per year, a fraction of what one large tanker can hold. Now has outbound shipments — mostly destined for other U.S. ports — of 650,000 barrels per day.

Thomas Tunstall, an economic development research director at the University of Texas at San Antonio, said U.S. companies are ready to move more rigs and equipment into the oil fields. “We’re really in a position to change our oil output,” Tunstall said of U.S. shale producers. “The energy companies are just aching to get back in there with higher rig counts. At $50 to $60, all things are possible again.”

Tunstall said he was cautious about the OPEC deal, though. “Yeah, it’s good news, but I’m always amazed at the ways traders can react,” Tunstall said. “I think if the prices do rise, and I’m not convinced they will on any sustained basis, it’s going to create incentives for their other (OPEC) members to go ahead and exceed their quotas.”

Analysts also agree the devil’s in the details. Will the OPEC cuts actually happen? And if they do, will they last?

“OPEC in the driver’s seat today,” the energy investment bank Tudor, Pickering, Holt & Co. wrote in a note to clients Wednesday morning. “Details will matter.”


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Written by Jennifer Hiller at the San Antonio Express-News

Click HERE to Read the Article by the Publisher.

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