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OPEC Not Likely to Stop Shale Boom

by Kirk Eggleston on December 18, 2014

OPEC’s decision in November of 2014 to not cut production was a direct assault on U.S. shale production, but its not likely to stop the U.S. shale boom.

The shale oil boom has been made possible by advancements in horizontal drilling and hydraulic fracturing, putting the U.S. in a prominent position on the world stage once again for crude oil production.

The Eagle Ford Shale in South Texas accounts for more than 1.5-million barrels of crude oil per day, and cumulative production in Texas and North Dakota, which encompasses the most active areas of the Bakken Shale, currently make up almost half of the nation’s crude oil supply.

Read moreEIA: Eagle Ford Shale Expected to Hit 1.614-Million b/d in Nov. 2014

OPEC Production Costs are Lower than in U.S. Shale

In the Middle East, production costs are less than $30 per barrel on average, according to the Norwegian firm Rystad Energy. OPEC is betting as prices fall, higher relative costs for U.S. shale production, will put the brakes on growth. But in certain “sweet spot” areas for drilling in the Eagle Ford and Bakken Shale in North Dakota, new wells can be drilled profitably, even if crude falls to $25 per barrel, according to ITG Investment Research Inc., cited in a recent Bloomberg article.

Ultimately, nobody has a crystal ball to predict futures prices for crude oil, but with WTI now below $60, some operators in U.S. domestic shale plays will consider scaling back their drilling programs in certain areas in 2015, and wait to see what will happen with crude oil prices.

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Despite lower crude prices, data released by the Energy Information Administration (EIA) shows gains in production across all major U.S. shale fields. According to the International Energy Agency (IEA), only 4% of U.S. shale production needs prices above $80 for drillers to break even. 

Production growth translates into good news for mineral owners, but lower commodities prices could have a negative affect on future drilling in the coming year, if the slide continues. On October 27, 2014, benchmark crude oil price WTI (West Texas Intermediate) was $80.63. At the end of September, it was ~$93.00.

Gains in Texas

The Eagle Ford Shale in South Texas is expected to produce 1.614-million b/d of oil in November, a 29% increase from the same time last year, and a ~2% increase from October’s expected production of 1.579-million b/d.

The Permian in West Texas is expected to produce 7.765-million b/d by the end of the month. In November, production is expected to increase ~2% to 1,807-million b/d.

Gains in North Dakota and Montana

The Bakken Shale is expected to produce 1.193-million b/d of oil in November, up 22% from the same time last year. October’s total production from the play is expected to be 1.164-million b/d.

In April of 2014, consultancy Wood Mackenzie issued a report that estimated break-even costs in the Bakken based on sub-plays. Break-even rates in the Sanish basin, one of the better areas for development in the Bakken, are estimated to average $58/bbl, according to the Wood Mackenzie report. Break-even costs were higher in other areas of the play.

Texas and North Dakota, which encompasses the most active area of the Bakken, currently make up almost half of the nation’s crude oil supply. Production data sourced from the EIA’s Drilling Productivity Report.

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First Ohio Dormant Mineral Act Cases Argued Before State Supreme Court – Aug 2014

August 26, 2014

The Ohio Supreme Court heard arguments for the first accepted cases surrounding the state’s Dormant Mineral Act, beginning in late August, 2014. The cases under review (Dodd v. Croskey and Chesapeake Exploration v. Buell) originated in Harrison County, OH, which sits atop the Utica Shale. Depending on the decisions handed down by the Supreme Court, severed mineral interests could […]

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Chesapeake v. Hyder – Royalty Owner Wins Big

July 17, 2014

Recently, a San Antonio court of appeals affirmed the decision of a Tarrant County judgement against Chesapeake Exploration, LLC, awarding royalty owners approximately $700,000 for deducting unauthorized post-production/post well-head costs. The plaintiff (Hyder) claimed Chesapeake deducted improper fees and interests from the royalty, based on specific language in the lease agreement. The Hyder’s royalty clause was not […]

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Natural Gas Production Soars in U.S.

June 26, 2014

Natural gas production in the U.S. was the best it’s ever been in April of 2014 according to estimates from Bentek Energy, an energy market analytics company based in Denver, CO. Production for the onshore Lower 48 last month averaged 67.3 Bcf/d, which was about .5 Bcf/d higher than March of 2014 production levels of […]

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State of Louisiana Seeks to Claim Privately Owned Lands

May 23, 2014

A dispute over mineral rights ownership, originating in DeSoto Parish, LA, has now evolved into a sticky situation that could potentially impact thousands of Louisiana mineral owners. The issue specifically centers around the state’s attempt to claim ownership of certain tracts of privately owned land that have previously been traversed by navigable waterways. In January […]

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Texas Royalty Owners Have the Right to Request Information from Operator

April 29, 2014

Royalty owners living in Texas receive a mandatory letter annually from operators notifying them that they can request certain information. Section § 91.504 of the Texas Natural Resources Code provides royalty owners the right to request information about itemized deductions, the heating value of the gas, and the identification number for the lease, property or well. […]

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Chesapeake Mineral Owners See Large Deductions on Royalty Checks

March 17, 2014

Chesapeake Energy has come under increased scrutiny in recent months for allegedly defrauding Pennsylvania mineral owners. The Wall Street Journal reported in March 2014 that some mineral owners are seeing deductions of more than 35% on their royalty checks! The publication compared the royalty checks of Pennsylvania mineral owners and found that Chesapeake’s lessors had […]

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Land Owners Seeking Public Use of CO2 Pipelines in Mississippi – Video

February 18, 2014

Land owners in Mississippi are seeking public access to CO2 pipelines controlled by Denbury. The two pipelines supplying oil fields in the state are 50% utilized and land owners believe shared use could create additional value for themselves and the state. The pipelines were built employing eminent domain, but there is only one owner and […]

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Kansas Could Inact Limits on the Number of Oil Wells on a Property

February 17, 2014

A state senator in Kansas has introduced a bill that could limit the number of oil wells drilled on property in the state. A hearing to discuss the bill has not been scheduled and proposal might not be addressed until the next legislative session. The problem is magnified by surface owners that do not own […]

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