Foreign energy producers Statoil ASA, BHP Billiton Ltd. and BG Group plc, which have eagerly — and substantially — invested in U.S. unconventional natural gas over the past few years, are eschewing the low-priced fuel and following other operators to domestic liquids and oil plays, executives said this week.
Norway’s Statoil, plans to invest less in its North American portfolio because of falling gas prices and is moving some onshore rigs to more oily plays, said CEO Helge Lund. During a conference call to discuss the company’s latest earnings results, Lund said Statoil remains enthusiastic about U.S. unconventionals for the long term but for gas prices, not so much.
“There are tough times ahead in the U.S.” for natural gas, said Lund. “We see another few years with lower prices than the industry anticipated…” He told analysts that “it’s now a common view that the U.S. will be self-sufficient with gas for many, many decades into the future. I think it was significant that [President] Obama, to my knowledge, for the first time in his State of the Union speech a couple of weeks back underlined the importance of shale gas resources.”
Statoil in late 2008 paid $3.38 billion to Chesapeake Energy Corp. for a stake in the Marcellus Shale (see Daily GPI, Nov. 12, 2008). In 2010 it secured Eagle Ford acreage in a joint venture with Talisman Energy Corp. (see Daily GPI, Oct. 12, 2010). Last year it paid $4.4 billion to buy Brigham Exploration Co., giving it access to the Williston Basin’s Bakken and Three Forks formations.
Statoil has a “very strong portfolio in the U.S. in terms of cost competitiveness and also by building a portfolio that has a good balance between gas, liquid products and also pure oil, as we’re doing in the Bakken area,” said Lund. “And we believe that those resources have the potential of producing around 300,000 b/d by the end of this decade and beyond.”
For now, however, “the current gas price doesn’t lend itself to massive drilling of production wells in the dry gas area of Marcellus. On that basis, the activity level is now reduced. And we will employ a lower number of rigs for value creation reasons, as I think you will understand…”
Statoil has moved six of its 36 rigs out of the Marcellus and the rig count could be “reduced somewhat further toward the year-end but still [be] sufficient to the take care of the activity that we want to do currently in that,” said Lund.
In the Marcellus Shale “we have close to 300 wells in production and more than 400 ready pending tie-in hydraulic fracturing [fracking]…The majority — and this is important — the majority of our renewal production in 2012 will come from wells already drilled in Marcellus and thus, not be much influenced by the current lower gas prices.
“Most of the wells drilled over the past two years have been to hold acreage. And we now have an inventory of drill-ready locations, i.e., pads exceeding 2,000 wells. These can be drilled and brought on stream at some of the lowest costs in the U.S. And we also continue to drill to hold acreage to ensure that we can add significantly more production in the years to come as the prices will adjust gradually.”
More rigs are to be added in the Eagle Ford, however. “And of course, we are working on the ramp-up of the Bakken part of the portfolio as this…is oil…with an attractive market.”
Statoil expects U.S. gas prices “will stay at a relatively low level for a decent period of time,” said Lund. “However, this also makes gas more competitive and will flow more easily, we believe, into the electricity sector replacing coal and will also, I think, support the further use of gas in the industrial sector.”
UK-based BG partners with Exco Resources Inc. in U.S. unconventionals. The two have a joint leasehold in the gassy Haynesville-Bossier shale play in which they’ve made substantial investments since 2009 (see Daily GPI, April 22, 2010; July 1, 2009). BG also has a half-stake in Exco’s Appalachian Basin acreage, which includes the Marcellus Shale (see Daily GPI, May 11, 2010).
But gas isn’t where it’s at these days, said BG CEO Frank Chapman. The company expects to produce 80,000 boe/d of gas from its U.S. fields in 2015, down almost 60% from an earlier forecast of 190,000 boe/d. The company cut its output forecast for the next three years “a bit more” than 1 million boe, down from a previous forecast of 1.2 million boe/d.
“We agree actually with the market view that the prices in the longer term will sit somewhere in the $4.00-6.00/MMBtu range,” Chapman said. “Our view is they will be in the lower part of that.”
BG also has reduced the number of rigs it operates in U.S. gas fields to eight from 35. Instead of working on producing more gas, Chapman said BG will focus on LNG export plans from the United States.
According to Chapman, BG is forecasting that about 45 million metric tons of LNG could be exported annually from the United States by 2020. Subsidiary BG Gulf Coast LNG recently agreed to purchase 5.5 million metric tons a year of LNG from the proposed Sabine Pass Liquefaction LLC facility under way in Louisiana (see Daily GPI, Jan. 27).
Last May BG formed a joint venture with Houston’s Southern Union, which is being purchased by Energy Transfer Partners LP, to work on export plans from Southern Union’s LNG import facility in Lake Charles, LA (see Daily GPI, May 10, 2011). BG also is laying the groundwork for an export terminal in Prince Rupert, which is on British Columbia’s north coast (see related story).
Australia’s BHP made a huge bet on U.S. shale gas last year. It paid $12 billion to buy Petrohawk Energy Corp. (see Daily GPI, July 18, 2011). And it spent $4.75 billion early last year to carve out a piece of Chesapeake’s Fayetteville Shale acreage (see Daily GPI, Feb. 23, 2011).
But all of that acreage has been put aside in 2012, CEO Marius Kloppers told investors. He said his exploration chief Mike Yeager is moving shale development off the priority list. “‘I think what Mike wants to do is probably less gas activity than he planned and probably on balance slightly more oil activity,” said Kloppers. “That activity level is probably considerably lower than he would have thought six months ago.”
The contribution from U.S. shale oil and liquids plays originally was expected to deliver about 20% of BHP’s U.S. revenue this year. However, U.S. liquids and oil now are expected to be about half of BHP’s U.S. production, said the CEO.
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