Exploring EnErgy nEws December 2017, Page 7

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OPEC Starts Working On Oil Supply Cut Exit Strategy

“OPEC Starts Working On Oil Supply Cut Exit Strategy - Sources” Rigzone.com, 21 December 2017.

OPEC has started working on plans for an exit strategy from its deal to cut supplies with non-member producers, two OPEC sources said, a sign that an eventual winding down of the deal is coming onto producers’ radar, at least in theory.

The Organization of the Petroleum Exporting Countries, Russia and other non-OPEC producers on Nov. 30 extended an oil output-cutting deal until the end of 2018 to finish clearing a glut. But the market is increasingly interested in how producers will exit the deal once the excess is cleared.

Two OPEC sources said the group’s secretariat in Vienna has been tasked to work on a plan with different options and it was too early now to say what the plan would look like.

“It’s a continuity strategy, rather than exit,” one of the OPEC sources said.Oil prices have rallied this year and are trading near $64 a barrel, close to

the highest since 2015, supported by the OPEC-led effort. This is above the $60 floor that sources say OPEC would like to see in 2018.

Publicly, OPEC ministers say it is too early to talk of an exit strategy. But OPEC has said producers want to continue working together beyond the end of 2018, including on supply management.

While oil prices have risen to levels seen as favourable by OPEC, the stated goal of the supply cut is to reduce inventories in developed economies, which built up after a supply glut emerged in 2014, to the level of the five-year aver-age.

OPEC is making progress and said in October OECD inventories stood 137 million barrels above the five-year average. Since the start of deal in January, the overhang relative to that average is down by 200 million barrels, Kuwait’s oil minister said on Wednesday.

A discussion on exiting the deal may be needed before December 2018 if, as OPEC expects, the world oil market returns to balance by late 2018.

OPEC and its allies hold their next full ministerial meeting in June, which will be a opportunity to review progress.

Non-OPEC Russia, which has been the biggest contributor to cuts from out-side the group, has been suggesting a review of the deal as early as June. How-ever, its biggest producer Rosneft said this week the cuts could last into 2019.

Oasis Looks To Expand Oil Ambitions Beyond North

Dakota’s Bakken“Oasis Looks To Expand Oil Ambitions Beyond North Dakota’s Bakken” Rigzone.

com, 21 December 2017.Oasis Petroleum Inc, the last major oil producer operating exclusively in

North Dakota’s Bakken shale formation, is heading south to the nation’s largest oilfield, pursuing a pricey expansion as investors worry about maturing shale fields.

Oasis shares have tumbled 21 percent following last week’s disclosure, pointing to growing tension between oil producers looking to invest in their future and investors demanding better returns.

Oasis said the $946 million cash-and-stock investment secures a premier foothold in the Delaware basin area of the Permian, the nation’s fastest-grow-ing oil field, while spreading its costs over a wider drilling footprint.

The Bakken, one of the first U.S. shale fields to be tapped, is maturing, oil analysts say, noting that by some measures it has just five or six years of sweet-spot drilling sites left in its core.

“Oasis had to do something,” said Tim Rezvan, an oil analyst with Mizuho Securities. “The core inventory they had in the Bakken was finite, and to not have another asset with similarly high returns would have been challenging for shareholders.”

Oasis covered the purchase price by issuing 46 million shares, a step that usually irritates existing shareholders. Several large investors in the company, including hedge funds that have been buying its stock in recent months, de-clined to comment on the deal.

Oasis is buying the land from Forge Energy LLC, a private company backed by some of the same investors who funded Oasis when it was founded in 2007. At a cost of about $46,600 an acre, the deal is among the most-expensive this year in the Permian, according to data from PLS, an oil and gas research firm.

Chief Executive Officer Tommy Nusz said in an interview that Oasis is not running out of opportunities in the Bakken, where he said it has at least 16 years of drilling ahead of it, and adding that Permian land will improve economies of scale by spreading costs.

“Scale matters,” said Nusz, who brushed off the share price drop as “unfor-tunate” but not a factor in completing the deal, which is expected to close next year. The company’s return on capital employed is “very competitive” with its peers, he said. “We’re building this company for the next three, five or 10 years out.”

Initially, Oasis will have to spend more on fracking and other services in the Permian, adding to costs. Over the next 18 months, Oasis said it will consider expanding its in-house fracking operations to Texas.

Nusz also expects savings from the larger volumes of sand, water and other supplies needed for drilling. In the Bakken, the company operates a pipeline subsidiary and has its own oilfield services business to frack and complete its own wells.

‘Tremendous Runway’Next year, Oasis plans to drill at least 100 Bakken wells, and at least 16 in

Texas, where Nusz sees operations hitting their stride by the middle of 2019 or early 2020.

“The Permian is a complement to what we built in North Dakota,” said Nusz, who has run the company since its founding. “This is not a repositioning of the company.”

Oasis also expects to build a pipeline network for water delivery on its new Texas acreage. At some point it will use the assets to boost its master limited partnership, Oasis Midstream Partners LP, formed earlier this year, Nusz said.

“We see tremendous runway in the Permian and Williston for our opera-tions,” said Nusz. “The next 10 years in the shale plays will be so much more different than what we experienced over the past 15 years.”

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