Jeanine Haller Piskurich, NAPE Operators Committee co-chair, Houston
US crude production in 2015 will reach 9.5 million barrels per day for the first time since 1970, according to the Energy Information Administration (EIA) Short-Term Energy Outlook published in October.
EIA and others attribute recent, dramatic increases to rapid growth in upstream production. While this has numerous domestic benefits, including lower natural gas prices for homes and businesses, the shockwaves of the shale boom extend far beyond our borders. They have already begun to radiate out to other countries with unprecedented challenges and opportunities.
In the short-term, shale producers are under "margin pressure." Increased production and decreased imports have contributed to the dramatic drop in crude oil prices since June 2014. If you've watched television news in recent months, you've seen pundits and Organization of the Petroleum Exporting Countries (OPEC) leaders raise the alarm that prices below $80 or even $60 per barrel might drive a large percentage of participants in US shale plays out of production.
However if you look at attendance and deal-making at recent NAPE events - where prospects and producing properties are bought, sold and traded - the picture is far from bleak. In addition, many experts predict these low prices will actually stimulate the kind of global demand that will soundly quiet any alarms.
While this dynamic will continue to be key trends for industry to watch in 2015, they hint at a number of other factors with the potential to be far more fascinating over the coming year.
Evolving policies
This year marked early steps toward a new era of energy policies. Energy reform in Mexico opened the door for foreign investment for the first time. Support for ending the US ban on crude oil and natural gas exports also appeared to be approaching the tipping point.
The summer was particularly hot for pushing these decades-old boundaries. The Commerce Department approved applications from two companies - Pioneer Natural Resources and Enterprise Products Partners - to export condensate in June. Shortly thereafter, on July 30, BW Zambesi left Galveston, Texas, with the first US crude oil export in nearly 40 years.
Also this year, the Department of Energy issued a request to the EIA to update its 2012 study on the merits of natural gas exports. Based on the 2012 results, this study is widely expected to support industry and economists' assertions that the US should level the playing field when it comes to its oil and gas exports.
While the May request did not specify a completion date, the DOE's Office of Fossil Fuels requested it be completed "as soon as possible" and address a number of export quantities that could start in 2015.
What to watch for in 2015:
- Additional applications to export crude
- More on the future policy changes from the Commerce and Energy Departments
Shifting power dynamics
This past year provided many reminders that energy transformation is critical for the ability of the US and other countries to offset destabilizing factors, like the crises in the Ukraine and Syria.
As the US continues to consider opening its borders to exports, we may be able to ease the impact of these regional conflicts. In turn, this may help stabilize prices and ensure a free flow of supply where it is needed.
What to watch for in 2015:
- Continued destabilization in key regions will continue to drive the importance of energy independence, which may in turn influence US export policy
Flowing funds
Some experts propose that current low per-barrel prices will encourage continued portfolio restructuring and a virtual gold rush of mergers and acquisitions. Western Gas Partners' acquisition of Nuevo Midstream will surely go down as one of the most talked about deals of the year and may be a leading indicator of increased M&A activity to come. Deals related to shale plays continue to be high in both value and volume, and unconventionals look to be a major driver of upstream dealmaking for the foreseeable future.
While investment is being made in shale across the globe, we can anticipate that most US upstream deal activity will involve domestic companies based on recent trends. According to EY's Oil & Gas Center, foreign investment into the US upstream market has been relatively quiet after a surge in 2010 and 2011.
What to watch for in 2015:
- Increased M&A activity
- Continued growth in deal-making related to US shale production
- Ongoing interest and investment by international players eager to learn how to ensure their domestic shale plays succeed
- Continued industry innovation with global benefits
Exchanging knowledge
This burst of new investment is not just about exchanging currency, however. Exploration and production opportunities in less developed international shale plays have created considerable interest in exchanging information. For one thing, foreign investors' returns may extend to better understanding of how to develop plays in their home country.
This knowledge transfer also extends to industry innovations being pioneered in the US. The most obvious game-changing technology in recent years is horizontal, multi-level hydraulic fracturing, which has transformed the US oil and gas industry, unlocking an unprecedented amount of previously inaccessible resources. However, there are a number of significant technological advancements that continue to drive industry forward - addressing both challenges and opportunities. For example, breakthroughs in water recycling, desalination and chilled carbon dioxide fracturing could make numerous shale plays around the world viable - and US companies are leading the charge.
With 38% of shale gas and tight oil resources in arid or high water-stress areas according to the World Resources Institute, such innovations are essential for extending the benefits of unconventionals to communities in China, Mexico, and around the globe.
About the Author
Among her many company and industry leadership roles, Jeanine Haller Piskurich serves as co-chair of the operating committee for NAPE, the industry's largest marketplace for the buying, selling and trading of prospects and producing properties. She has more than 25 years' E&P experience and is East Area Land Manager for the US Lower 48 Onshore at BP America Production Company.
