News from IPAA 2012 annual meeting: Executives see upstream industry moving forward, despite Obama win


News from IPAA 2012 annual meeting: Executives see upstream industry moving forward, despite Obama win

BY KURT ABRAHAM, Executive Editor

NEW ORLEANS -- Although President Obama’s election to a second term is definitely something to be concerned about, a panel of independent producer executives said that they expect the U.S. E&P industry to move forward, propelled by continuing advances in technology.

During today’s “Conversation with Industry Leaders” session at IPAA’s annual meeting in New Orleans, moderator Bob Fryklund, Vice President for Energy Research at IHS, told the audience that “not since World War II have we seen this kind of industry revival,” referring to recent gains in U.S. oil production. He noted that 22% of U.S. oil imports come from the Middle East, “and those people are worried about who is going to buy their crude in the future.”

Looking at how various independents go about operating, John Walker, president and CEO at Enervest, Ltd., said that “the key for us is to deliver a good rate of return on investment.” As a top-25 producer of oil and gas in the U.S. with 27,000-plus wells nationwide, Enervest has tried to stay ahead of the curve on new technologies, horizontal drilling and emerging shale plays. Referring to his firm’s operatorship of the aging, stripper well-laden Monroe gas field in Louisiana, Walker noted that “some people call it the worst field in Louisiana. Well, it may be on its last legs, but it will continue to be on its last legs for another 50 years.” He credits technical advances with prolonging the field’s life.

H. A. (Hank) True, III, managing member of Casper, Wyo.-based True Oil, said that while his firm does look for a reasonable rate of return, the privately-held, family-run company also tries to look into the future and decide what is right to continue the business. Accordingly, True Oil has been able to grow beyond the northern Rockies, into the Marcellus and Bakken shales, as well as Louisiana. Referring to the lack of pipeline capacity in the Bakken shale, True said that “if it were not for government regulations and bureaucrats, there would be a lot more infrastructure. So, the rail markets (shipment of crude via railroad) are very much a part of the marketing strategy there. The rail markets being developed right now are so diversified---Chicago, West Coat, Gulf Coast---it’s an amazing revolution. But having the traditional pipelines feeding crude into the traditional markets will also have a place. There will be both methods moving forward.”

Ultra Petroleum Chairman, President and CEO Mike Watford said that with his firm’s assets being predominantly gas, the independent’s strategy and plans are considerably different from its oil-oriented brothers. “Our cash flow was $1 billion last year, but it will be less this year and less next year, due to low gas prices,” said Watford. “Consequently, our capital budget, which had been $1.5 billion last year, is only $800 million this year, and it will be even less in 2013.” Watford said that Ultra continues to reduce its costs in the field. “We have (management) discussions all the time about keeping costs down, and even arguments on how to do individual fracs---it’s still evolving and changing. In some wells, we use two different completion techniques in the same well.” Watford said that he remains optimistic about activity levels for 2013, and predicts that prices will adjust to something that is more beneficial to his company. “I actually think that gas will get north of $4/Mcf, once we see some winter weather, and oil will go south of $80/bbl,” he said.

All three panelists agreed that environmental matters will remain a top concern for producers in 2013, with Watford noting that Ultra already recycles all of its frac fluids. Walker said that Envervest “is having to report in advance of every frac job. I think they (EPA) want to move us toward 100% green completions. The Feds, since they lost on frac fluids, are now trying to get to us with air quality regulations.” True said that “the feds are making us install vapor recovery units everywhere.” He’s also concerned about produced water and the availability of disposal methods. “We’re having to remove the water, truckload by truckload. It can be very expensive.”

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