FREE
VOLUME 3 NO. 3
The Power of
TEXAS
THE SKY IS NOT FALLING
CANADIAN CRUDE PROVES PERFECT PARTNER TO U.S. SHALE
IT’S JUST A FORK IN THE ROAD 8
12
TEXAS AGRICULTURE COMMISSIONER SAYS CONSUMERS ARE BEING RIPPED OFF
PBE CARES FOOD 2 KIDS 30
16 • U.S. RIG COUNT • TOP 35 Drillers & Operators
Industry Data
MARCH 2015
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News
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Events
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Auctions
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Calendar
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RESTAURANT BITES
Travel
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Tips
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Energy
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Tech
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PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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MARCH 2015
CONTENTS
PBE FEATURES 8
The Sky is Not Falling
8
12 Canadian Crude Proves Perfect Partner to U.S. Shale 16 Texas Agriculture Commissioner Says: Consumers Are Being Ripped Off
OTHER EDITORIALS
15 Calendar of Events 22 Conferences in March - April 23 Upcoming Auctions 24 Advice for Mineral Owners from Permian Basin Land Girl
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27 Safety Tips - Winners and Losers when Oil Prices Decline 28 Festivals and Events in Texas 30 PBE Cares - Food 2 Kids 32 Tech Bites - Ericsson Sues Apple over Patents 34 PBE News Briefs: Basin, Shale, State, Government, Nation, Offshore & World 42 Restaurant Bites - Stanton Drug 44 PBE Inspires - Family Walls 46 By The Numbers: Texas Rig Count, Top Drillers, Top Operators 49 This Month in Petroleum
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PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
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LETTER FROM
THE EDITOR The greatest leader is not necessarily the one who does the greatest things. He is the one that gets the people to do the greatest things. - Ronald Reagan If the true test of a great leader is their ability to triumph under fire, then there are a lot of great leaders who have the perfect opportunity to shine right now in the Permian Basin. The stress of another month of lower than desired oil prices has many local companies on edge and the tales of those who have shut their doors or laid off employees seem to be told more frequently than any of us would like to hear. But amidst all that negative news, there is still a silver lining: West Texas breeds great leaders. This part of the country is known for producing some of the most innovative technology and progressive companies in the world at the helm of which are always great leaders. As you’ll read about in one of the feature stories this month, our history serves as a great reminder of how our local business leaders have successfully pulled through rough times in the past by navigating the fork in the road, and became stronger and more efficient when they got to the other side. You’ll also be reminded of the entrepreneurial spirit that runs through the veins of those who grow up in this part of the country and how one local man is living his lifelong dream of owning his own business even in the midst of the struggling economy. Since children are the future of our nation, and in some cases, the future business owners in our area, it seems fitting to also have a story in PBE inspires this month from a local children’s ministry leader. She talks about the importance of rebuilding the family connections and being more intentional about engaging our children with immediate and extended family on a regular basis. As you prepare to head into this spring, I hope the anticipation of the new season refreshes your soul and gives you a renewed sense of hope and strength to keep moving forward. I think we could all benefit by focusing more on the lessons of the journey and less on the detours we face along the way. /PBENERGYMAG
Carlos Madrid Editor in Chief/Publisher sales@pbemag.com
@PBENERGY
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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EDITORIAL CONTRIBUTORS PBE MAGAZINE CONTACTS VOLUME 3 NO. 3
EDITOR IN CHIEF/PUBLISHER Carlos Madrid sales@pbemag.com 432. 559. 5886 ART DIRECTOR/LAYOUT & GRAPHICS Luke Pawliszyn Lukasz Design Studio West Hollywood, CA luke@lukaszdesign.com
MORRIS BURNS FREELANCE WRITER morrisburns@sbcglobal.net
ADVERTISING For advertising info call 432. 559. 5886 or email sales@pbemag.com ACCOUNT EXECUTIVE Dominique Brown dominique@pbemag.com 432. 599. 3127 SHARON LEWIS EARLY CHILDHOOD DIRECTOR Mid-Cities Community Church • Midland, TX www.midcities.org
SUBMISSIONS Submit story ideas & other news to marcy@pbemag.com PUBLISHED BY: PBE Magazine, LLC. Permian Basin Energy Magazine 4500 Erie Drive Midland, TX 79703 Main Phone: 432. 559. 5886
KIMBERLY SMITH CEO Development Resources, Inc.
www.PBEMag.com
/PBENERGYMAG
@PBENERGY
Copyright © 2015 Permian Basin Energy, Inc. • Mad Ads Media All rights reserved. Reproduction in whole or in part without the written permission of PBE MAGAZINE, LLC is strictly forbidden. The greatest care has been taken to ensure the accuracy of information in this magazine at time of going to press, but we accept no responsibility for omissions or errors. PBE Magazine welcomes any comments, feedback, suggestions, and/or submissions for consideration for publication. These may be submitted to: sales@pbemag.com.
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AARON CAMPBEL American Safety Services, Inc.
The Power of
TEXAS
www.PBEMag.com
To Advertise call
(432) 559 - 5886 or email
sales@pbemag.com
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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THE SKY
is not
FALLING by Morris Burns
If someone used a graph of oil prices the last twenty years as a model, it would make a great ride for Six Flags. Before oil and gas started trading on the New York Mercantile Exchange in 1983 there would be one or two changes in the posted oil price per year. Now with oil and gas both trading on the New York Mercantile Exchange there is a change every few minutes.
All the oil in the world is traded in U.S. dollars and the price is based on the NYMEX. The NYMEX price is an auction for 1,000 barrels of oil delivered to Cushing, Oklahoma one day next month. Each 1,000 barrel contract is auctioned and that sets the price until the next contract is sold, then that sets the new price and so on, hence the price changes every few minutes. Looking at the accompanying graph for the last twenty years, we have seen prices as high as $147.00 and as low as $20.00. Anyone who has been in this business more than a few years has ridden this roller coaster up and down numerous times. The encouraging thing about it is that when it goes down it always comes back up and the people who do not create excessive debt survive and those who spend money like a drunken sailor on shore leave go bankrupt. The markets always overreact with these price swings. The NYMEX is an emotion, rumor driven market just like the New York Stock Exchange. The price goes up higher 8
than it should, then drops lower than it has any reason to which leads the news media to declare as Chicken Little said, “The sky is falling!” Factors that have caused the prices to fall are: a strong U.S. dollar, economic slumps in Russia, Japan, China and Western European countries, and the normal spring and fall down turns driven by lower demand. We have had a perfect storm of things driving the prices down with none of the things that drive the price up, such as hurricanes in the Gulf of Mexico, coups in producing countries, a weak U.S. dollar and government regulations that lower production like the prairie chicken habitat, fracturing regulations or increase the cost of production. Add to that such things as fear of climate change or global warming, or as I call it, gullible warming, fracturing causing earthquakes and damaging ground water all adding to the cost of finding and producing oil and gas. Take a look at the two covers of Time Magazine 30 years apart. The same “science” that in 1977 was taking us into another ice age is now causing, as President Obama
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
calls it, “The greatest threat facing our nation today, climate change.” We have had two major busts, 1986 and 1998, both fueled by producing countries over producing and flooding the market with oil. In 1986 Saudi Arabia had taken the role of swing producer so that when one OPEC country cheated on its quota by 100,000 barrels Saudi Arabia would cut its production by a like amount to keep the price up. In 1986 King Faud tired of playing the role of swing producer and flooded the market with 3 to 5 million barrels dropping the price from $30.00 on January 1 to $8.00 by April 1 and putting the entire world’s oil
economy into a ten year period of looking up at $20.00 oil rather than down at it. In 1998 Hugo Chaves of Venezuela did the same thing dropping prices from around $20.00 to $10.00. Now no country has that kind of over production, everyone is producing flat out. Since 2008 the world’s production and consumption have been very close to parity. In 2014 worldwide production was about 93 million barrels per day and demand was about 93 million barrels a day. Estimates are that currently there is about a 2 million barrel, or about 2 percent, of oversupply worldwide. In July of 2008 the price of oil spiked to $147.00 causing a worldwide recession. By December of 2008, barely six months, the price dropped to $37.00 resulting in the same kind of contraction we are currently experiencing. By the end of the year 2009 oil prices had recovered
to $75.00. The rigs currently being idled will result in a reduction of the oversupply we are experiencing. A look at the decline curve chart shows that wells typically decline by about 50 percent in the first year of production, then level out. The reduction of the number of new wells being brought on line will result in the lack of flush first year production leading to a reduction in the current 2 percent overproduction. The news comes out with headlines talking about the number of jobs being lost. The figures are jobs reduced worldwide. In periods of reduced workforces like we are experiencing, most companies do everything they can to keep their best employees. The employees who show up late to work, call in sick, spend time on their cel phone at work, pad expense accounts etc. are the first ones let go. The others may be painting and servicing the rigs, mowing grass or anything to keep them employed until the rigs go back to work. The current layoffs are in the drilling side of the industry. The production people are still busy for the most part since they are keeping the oil pumping. 95 to 98 percent of all the transportation in the world runs on: gasoline, jet fuel and diesel fuel. The only thing we can make that amount of fuel in economic quantities from is crude oil. It will be years before liquefied natural gas, bio diesel, electricity or any other motor fuel substitute makes even a slight dent in the consumption of fuel made from good old crude oil.
Therefore -------- The sky is not falling! This price dip should be as short as or shorter than the one in 2008 and 2009. Just take your industrial strength Dramamine, don’t borrow a lot of money, and hang on for the ride.
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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WTxEC Annual Conference 2015
Power In Partnership MAY 6-7 TH 2015
San Angelo, Texas The West Texas Energy Consortium is excited to present our 2nd Annual Conference at the McNease Convention Center on May 6 & 7, 2015 Visit wtxec.org for the full agenda
Day One (May 6, 2015) Workshop & Training Sessions • Emergency Responders Training Wild Well Control 6 hours CEU offered • Texas Regional STEM Education with Dr. Reagan Flowers • Economic Development “Share The Knowledge” Railway expansion, city ordinance, hydraulic fracking, and more
Members Only Event - TBA Networking Reception Day Two (May 7, 2015) Industry Trends, Employer Updates, Legislative Affairs, Economic Forecast, and MORE!
INTERESTED IN SPONSORSHIP? WTxEC has something for everybody. To learn more about supporting our work in West Texas and the benefits to your company or organization, contact Katherine Stokes, Executive Director katherine@wtxec.org and 325-669-2769.
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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CANADIAN CRUDE
PROVES PERFECT PARTNER
TO U.S. SHALE Source: Reuters
U.S. refineries are processing record quantities of heavy crude from Canada as the perfect complement to light oils from North Dakota and Texas as they struggle to keep their average blend steady. Crudes vary enormously - from low-density oils with few impurities to much denser oils containing a relatively high percentage of sulfur and heavy metals such as nickel and vanadium.
But the big differences are easier to understand by switching to more familiar units. A cubic meter of Bakken crude weighs around 815 kg, compared with 885 kg for Arab Heavy and 925 kg for Western Canadian Select.
Bakken and Eagle Ford are light, sweet oils, while Saudi Arabia’s Arab Heavy and Alberta’s Western Canadian Select are much heavier and sourer.
STEADY DIET
The density of crudes is normally expressed in terms of degrees API, which compares oil to the density of water at a standard temperature of 60 degrees Fahrenheit. Crude density ranges from 42 degrees API for Bakken (which makes it about 80 percent as dense as water at standard temperature) to 27 degrees for Arab Heavy (89 percent as dense as water) and 22 degrees for Western Canadian Select (93 percent as dense as water). 12
While the qualities of crudes vary widely, U.S. refiners have discerning requirements. The average density of crude processed in U.S. refineries has been steady, varying by only 3 degrees over the last three decades, or about 17 kg per cubic meter, according to the U.S. Energy Information Administration (EIA). U.S. refiners like to process crudes averaging around 30-32 degrees API, or between 865 and 875 kg per cubic meter (link.reuters.com/vys24w).
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
Refineries achieve this remarkably steady performance by blending crudes to achieve a combined feed as close as possible to the ideal. Bakken, at just 815 kg per cubic meter, is much lighter than the 865-875 kg refineries are trying to achieve. Eagle Ford is lighter still. U.S. refiners have responded to the rising output of very light domestic crudes by cutting back purchases of other light oils from abroad while importing more heavy crudes to keep the average density roughly constant. Strict blending requirements explain why U.S. imports of light oils from countries such as Nigeria have dwindled to almost nothing while refiners import record quantities of much heavier oil from Canada. In fact, Western Canadian Select (WCS) is the perfect complement for shale oil production from the Bakken and Eagle Ford. WCS is around 55 kg per cubic meter heavier than refiners would like on average, while Bakken is around 55 kg too light, so they blend perfectly with one another. In practice, blending is slightly more complicated than this simple example. However, heavy crude oils from Alberta are the perfect blending partners for light crudes from the main shale plays in North Dakota and Texas. As a result, U.S. imports from Canada reached almost 3 million barrels per day in the final months of 2014, up from less than 2 million bpd in 2010, according to the EIA.
KEYSTONE CRUDE President Barack Obama has implied that the proposed Keystone pipeline would be of little benefit to U.S. refiners because it would carry Canadian crude across the United States for export to foreign markets. “Understand what this project is,” the president said during a November visit to Myanmar. “It is providing the ability of Canada to pump their oil, send it through our land, down to the Gulf, where it will be sold everywhere else.” The president was poorly briefed. U.S. refineries are processing record volumes of Canadian oil, even as U.S. production is rising, and they are hungry for more. Canadian oil is being processed together with U.S. shale oil to enable U.S. refineries to make best use of their
equipment, which is why refiners support Keystone. Without more imported Canadian oil, which could come via pipeline or on rail cars, refineries will have to turn to other suppliers of heavy crude. The prime candidates would be Venezuela, Saudi Arabia, Iraq and Mexico. Quality issues also explain why there is a compelling case to permit more U.S. domestic crude to be exported rather than refined at home. U.S. refineries cannot simply refine more U.S. production (weighing 815 kg per cubic meter) by replacing Canadian crude (weighing 925 kg). Policymakers who suggest the United States need not build pipelines from Canada, and should maintain restrictions on the export of domestic crude to promote national energy security, do not understand how refineries operate.
LIGHTER BARRELS U.S. refineries are already struggling to maintain their preferred blend in the face of a torrent of light oil from Bakken, Eagle Ford and the Permian Basin. Even with rising Canadian imports, the average API gravity of crude processed at U.S. refineries has risen from a recent low of 29.9 degrees in June 2008 to a high of 31.8 degrees in September 2014. In the 12 months to September, average API gravity rose by almost a full point, which is an enormous shift in such a short time. In the short term, refineries have some operational flexibility. But the record suggests this flexibility is limited to changing the average crude mix by 2 or 3 degrees API at most. U.S. refineries cannot run on an exclusive diet of 40 degree shale oil without enormous and expensive investment in new equipment. Production from the major U.S. shale plays is likely to flatten this year after growing by around 1 million barrels per day in both 2013 and 2014.
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OBSERVANCES AND CELEBRATIONS
MARCH 2015 8
DAYLIGHT SAVINGS BEGINS AT 2:00 A.M.
Birthstone: Aquamarine Flower: Jonquil National: Red Cross Month National Frozen Food Month National Peanut Month National Craft Month National Women’s History Month
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INTERNATIONAL WOMEN'S DAY
17 ST. PATRICK’S DAY
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INTERNATIONAL EARTH DAY
SPRING EQUINOX
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PALM SUNDAY
APRIL 2015 Birthstone: Diamond Flower: Sweet Pea, Daisy
1
APRIL FOOL'S DAY
3 PASSOVER
5
EASTER SUNDAY
15 22
EARTH DAY
INCOME TAXES DUE MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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TEXAS AGRICULTURE COMMISSIONER SAYS
CONSUMERS ARE BEING RIPPED OFF Source: JAY ROOT, The Texas Tribune
Texas consumers are “getting screwed” by unscrupulous businesses — everything from gas stations to pawn shops — because the cash-strapped Department of Agriculture has not been able to perform many of its basic regulatory functions, new Agriculture Commissioner Sid Miller said. The department is supposed to check gas pumps for accuracy, verify that grocery store scanners work properly, attest that precious metal scales are producing accurate measures and inspect taxicab meters to verify that people aren’t being overcharged. But after the department saw its budget cut by about one-third in 2011, Miller said, it has struggled to keep up with its duties. He said the department will collect an estimated $7.8 million less in fees and income from self-supporting programs than hoped in the 2014 and 2015 fiscal years, and he faces a huge backlog of work left over from his predecessor. For example, nearly 2,000 cases involving suspected violations haven’t been reviewed going back two years, according to department figures. About $1.5 million in penalties that have been assessed has gone uncollected. And the agency has never once in its history inspected a taxicab meter, Miller said. “If you get a notice in the mail that you’re in violation, well, if you’re a pesticide applicator, or its eggs or fuel pumps or gold and silver scales or whatever it is, you’ve been out of compliance all that time and the consumer 16
is getting screwed,” Miller told The Texas Tribune. “So we’re trying to figure out how to work through that backlog.” Miller is asking the Legislature for nearly $50 million to restore the agency to pre-2011 levels. He said he will have to raise fees and licensing charges for a variety of programs the department oversees. In addition, Miller said he was concerned enough about the $7.8 million “lapse” in revenue in the budget adopted in 2013 — and other problems he has encountered since taking office — that he asked the Texas State Auditor’s Office to conduct a formal review of the agency. Miller said he is not interested in “pointing fingers,” but he wants to know in detail what occurred before he took office in January. “All that happened before I got here. I’m trying to establish a baseline and move forward,” Miller said. “I’m not pointing the blame at anybody. We’re going to run it like I think it needs to be run.” Former Agriculture Commissioner Todd Staples, who left office late last year to become president of Texas Oil and
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
Gas Association after an unsuccessful run for lieutenant governor, said he was proud of his service over the previous eight years. Miller and Staples are Republicans. “TDA is a very big agency with the broadest mission of any agency in the state. And there will always be some area that needs to be addressed. I hope Commissioner Miller can get his arms around how big and broad and complex the agency is,” Staples said. “The TDA team consistently came in under budget, and resulted in returning about $50 million back to the taxpayer” during his eight years as head of the agency. That’s about the same amount of money Miller said he needs to perform core functions. As such, his comments clash with the narrative that Republican leaders have been crafting for years — that state government can and should operate on less money without compromising its duties to taxpayers. Former Gov. Rick Perry presided over deep budget cuts in 2003 and 2011, and newly elected Gov. Greg Abbott is asking most state agencies to cut their budgets by 3 percent over the next two years. Miller, who considers himself a fiscal hawk and campaigned as one when he was in the state House of Representatives, said he needs more resources to protect consumers from “unscrupulous actors” and fulfill the mission the Legislature has given him. “I’m not about big government. I’m not asking for more people than I need,” he said. “But I feel an obligation to protect the consumer and to market agriculture and we’re all about that over here.” Miller has briefed legislators about his concerns, and some lawmakers expressed shock about the state of the agency as he described it. State Sen. Paul Bettencourt, R-Houston, said he discovered the problems with the oversight of gasoline sales firsthand. “I learned about this when I drove my car in and filled
up 27 gallons on a 19-gallon tank,” Bettencourt said, referring to a gas station that he said had been deceiving drivers in Houston. “I commend the idea of getting out there, because the public is simply getting ripped off and they have no way of knowing it.” Bettencourt said he doubted pawnshops were being honest with consumers, either. “I can only imagine the stir you will cause when you show up at a pawnshop” to look at weights and measures, he said. Miller is asking for an additional $48 million in funding from the Legislature. He said he wants the agency’s huge budget cuts from 2011 restored. In 2011, facing an estimated $27 billion shortfall, the Legislature deeply slashed state agency spending. Lawmakers also asked the agriculture department to shift its marketing programs — designed to promote Texas agricultural products — to a “cost recovery” mode. Under that approach, programs have to pay for themselves with the revenue they generate through fees, permits and the like. In one such program, producers paid a fee so they could brand their products as “Go Texan” and the state would market the brand. When that became a “cost recovery” program, though, the department never raised enough money through fees to pay for it. That contributed to a reduction of almost $8 million in spending authority in the department’s current budget. As a result, Miller says he now faces the unpleasant task of raising various fees the agency collects in order to generate enough revenue to pay for the cost recovery programs at the agency. “I have the job of going in and tell everybody I’ve got to raise their fees and their licenses,” Miller said. “People
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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are going to scream at me, but we’re going to do it because that’s what the law says we do.” Staples said much of the problem can be associated with the agency’s failure to collect enough revenue from its marketing efforts. He said he never agreed with the Legislature’s decision to make marketing programs recover their costs. “We recognize the dollars we were authorized to recover could never be achieved,” he said. “[Marketing by the state] is not something that businesses want to pay for.” According to the state comptroller’s office, which prepares revenue estimates and monitors agency spending, the agriculture department had a role in determining the amount of revenue it would collect from its cost recovery programs but never had access to $7.8 million of it for fiscal years 2014 and 2015. If an agency isn’t collecting projected revenue, the comptroller “lapses,” or withholds, the spending authority for the corresponding amount. “They never really had the ability to spend that money until we unlapsed it, but that scenario never played out, so it just remained lapsed,” said Lauren Willis, a spokeswoman at the comptroller’s office. “There is input from the agency to determine what the projections are for the estimate.”
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CONFERENCES IN MARCH - APRIL 2015 POWERTEST Conference 03/02/2015 - 03/06/2015 Renaissance Nashville Hotel, Nashville, Tennessee 888.300.6382 www.powertest.org SPE Digital Energy Conference and Exhibition 03/03/2015 - 03/05/2015 The Woodlands TX, USA www.spe.org/events/dec/2015 Financing in Oil and Gas North America Event 03/09/2015 - 03/10/2015 Houston TX, USA www.smi-online.co.uk/2015pfoilgasusa46.asp Annual Gas to Liquids North America Event 03/11/2015 - 03/12/2015 Houston TX, USA www.smi-online.co.uk/2015gtlamericas33.asp Annual Petcoke Conference 03/13/2015 - 03/14/2015 Orlando FL, USA www.petcokes.com API Spring Committee on Petroleum Measurement Standards Meeting 03/16/2015 - 03/20/2015 Dallas TX, USA www.api.org/events-and-training/calendar-ofevents/2015/springcopm SPE E&P Health, Safety, Security and Environmental Conference-America 03/16/2015 - 03/18/2015 Denver CO, USA
www.spe.org/events/hsse/2015 ASME HYDRAULIC FRACTURING CONFERENCE 2015 New York City, USA 03/17/2015 - 03/19/2015 www.asme.org/events/hydraulic-fracturingconference GSA South-Central Section Meeting 03/19/2015 - 03/20/2015 Stillwater OK, USA www.geosociety.org/Sections/sc/2015mtg AFPM Annual Meeting 03/22/2015 - 03/24/2015 San Antonio TX, USA www.tsnn.com/events/american-fuel-andpetrochemical-manufacturers-afpm-formerlynational-petrochemical-refiners-a GSA Northeastern Meeting 03/23/2015 - 03/25/2015 Bretton Woods NH, USA www.geosociety.org/Sections/ne/2015mtg ASME Joint Rail Conference 03/23/2015 - 03/26/2015 San Francisco CA, USA calendar.asme.org/EventDetail.cfm?EventID=28060 SPE Coiled Tubing and Well Intervention Conference and Exhibition 03/24/2015 - 03/25/2015 The Woodlands TX, USA www.spe.org/events/ctwi/2015 AFPM International Petrochemical Conference 03/29/2015 - 03/31/2015 San Antonio TX, USA 1 202 457 0480 1 202 457 0486 meetings@afpm.org www.afpm.org/Conferences GPA Annual Convention 04/12/2015 - 04/15/2015 San Antonio TX, USA www.gpaglobal.org/calendar/events
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PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
Leading Auctions in the Oilfield Industry. Upcoming Auctions and Auction Equipment listings from Tradequip International’s online and site-held auction companies. Saurce: Tradequip International
Drilling Rigs
Prod. Equip.
Drilling Equip.
Tubular Goods
Oilfield Trucks
Oilfield Trailers
Parts & Tools
www.tradequip.com
Support Equip.
SOUTHCENTRAL AUCTIONS
COMPANY
DATES
LOCATION
INVENTORY
U.S. TRUCK PARTS SALVAGE SALE
Machinery Auctioneers of Texas
March 3-4, 2015
Dallas, TX
No Lots are Currently Posted for this Auction
EQUIPMENT AUCTION
Ritchie Bros Auctioneers
March 17, 2015
Lake Point, UT
WELL SERVICE RIGS & EQUIPMENT
Kruse Energy & Equipment LLC
March 19, 2015
College Station, TX
WELL SERVICE RIGS & EQUIPMENT
Machinery Auctioneers of Texas
March 24, 2015
Alice, TX
ANNUAL WINTER AUCTION
Cannon Sales Inc
March 25-26, 2015
Odessa, TX
No Lots are Currently Posted for this Auction
INTERNET AUCTIONS
COMPANY
DATES
LOCATION
PIPE & EQUIPMENT AUCTION
Network International Inc
March 4-11, 2015
Internet
PIPE & EQUIPMENT SEALED BID AUCTION
Network International Inc
March 10-25, 2015
Internet
PIPE & EQUIPMENT AUCTION
Network International Inc
March 17-24, 2015
Internet
INVENTORY
No Lots are Currently Posted for this Auction
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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ADVICE FOR MINERAL OWNERS FROM A PERMIAN BASIN LAND GIRL
#AgentsOfChangeInOil Hundreds of land-managers & oil executives traveled to Houston in February for the North American Petroleum Expo at the George R Brown Center in downtown Houston. It is a semi- annual event where industry professionals shop for deals. (Amidst hundreds of geological maps, girls can only find one jewelry vendor and NO shoes!) This year, one of the keynote speakers included Former Governor Sarah Palin. However, without boarding a plane, or staying in a hotel, Permian residents & oil executives were able to hear Governor Palin right here in West Texas. On the same day as the Governor spoke in Houston, she jetted to West Texas to the Wagner Noel Performing Arts Center to encourage women in leadership. (Local newspapers publicized this event.) Certainly this #mineral generosity was a gift of UTPB & their donors on February 12, 2015. Some of the oilmen and women who sponsored this event were Jack Blake and Mona Ables, and Tryon and Trudy Lewis! Thanks Donors! I attended with Lana Straub, West Texas Writer & Radio Personality, Byron Smith, Landmanager, Development Resources, Inc. Morris and Connie Burns, Radio Personality on KWEL, Tuesday at 8:00 a.m., Charles Spence & Ed Todd, Midland Community Leaders & other remarkable Permian leaders. Over 1,600 people came to hear her speak on the topic, Groundbreakers, Mavericks, and Trailblazers: How Women are Showing 21st Century Leadership. As the Permian Basin has it’s days of “highs” and “lows” this leadership institute reminded us that it takes leadership to get through a tough industry cycle. While Former Governor Palin was upbeat, & inspirational, attendees heard the undertone of her challenges. Her family is raising a son who has special needs, who was born with an extra-chromosome, she continued with national public leadership while pregnant, and
ran for office to help rectify unethical oil practices in the state of Alaska. None of the scenarios were easy professional or personal tasks. Although she did not focus on the struggle, it was clear her family HAD to have leadership and endurance to continue the fight for issues they felt were important. When asked about a definition of a feminist, Governor Palin said “ I think cowgirls are feminists…. because they have to know what to do in tough conditions and get it done.” In West Texas there are so many strong ranch women managing family estates who follow this tradition. Certainly, Governor Palin is a woman I admire in the oil & gas industry. Sarah Palin is a female energy leader from Alaska which has faced petroleum legislative issues within Alaska and throughout the United States. Some women are strong leaders in the oil industry & within our community. We are proud to have them as guests in the series #Agentsofchangeinoil in February & March. On Ask the Permianlandgirl radio show every Saturday at 1:00 p.m. on AM 1070 FM 107.1. Leading into this series, we have had the privilege to host the following #agentsofchangeinoil.
1) Young Professional Women in Energy, Amelia Papapetrolous from Pennsylvania 2) Chicks Dig Fracking from Colorado 3) Katie Mehnert with #PinkPetro.
Truly yours, Kimberly Smith, CEO Development Resources, Inc. can also help retrieve and inventory your mineral estate. @permianlandgirl on twitter or landmaam.com
We are so impressed to have a few female leaders in the industry on the show twice so they can share their story to our listeners twice! All of these leaders can be found on twitter! • March 7 Former Railroad Commissioner Elizabeth Ames Jones, Guest Host Morris Burns • March 14 Paula Waggoner- Aguilar, @The Energy CFO, San Antonio, Texas • April 4 Former Railroad Commissioner Elizabeth Ames Jones, Guest host Morris Burns • April 11 Paula Waggoner- Aguilar, @The Energy CFO, San Antonio, Texas Governor Palin reminded us to keep moving even if you see a glass ceiling, cherish what you are created to do, and know what you have to do in tough conditions!
Ask the Permianlandgirl on KWEL.com, AM 1070 and FM 107.1 - every Saturday at 1 PM. Call 432-620-8700 to ask questions or email me at permianlandgirl@gmail.com Let your minerals be a joy in your life… Contact us to help us inventory your minerals. www.permianlandgirl.org 24
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
Got leaking wells? MetalPatch it! MetalPatch restores the integrity of your well with a single trip solution. Cement squeezes are now a thing of the past. MetalPatch seals off the problem area with minimal loss of inner diameter, providing maximum production and wellbore access. Some highlighted features: » Frac’d through in the Permian, Bakken, Marcellus & Utica Shale. » Seal off perforations or leaking casing. » Straddle wellbore restrictions, e.g., Frac Valves. » Single trip installation with no drill out. » Long Lengths up to 8,000 ft. » High Pressures up to 12,000 psi. » H2S NACE “A” Qualified.
Expanded Tubular Geometry
Customers Casing OD
5.50
Wt [lb\ft] 23.0 20.0 17.0 15.5 13.0
ID [in] 4.670 4.778 4.892 4.950 5.044
API Drift [in] 4.545 4.653 4.767 4.825 4.919
Nipple [in] 4.420 4.528 4.642 4.700 4.794
OD [in] 4.552 4.670 4.795 4.859 4.962
4.50
Wt [lb\ft] 15.1 13.5 12.6 11.6 10.5 9.5
ID [in] 3.826 3.920 3.958 4.000 4.052 4.090
API Drift [in] 3.701 3.795 3.833 3.875 3.927 3.965
Special Drift [in] 4.006 4.130 4.261 4.327 4.435
Expanded Tubular Geometry
Customers Casing OD
Nominal ID [in] 4.066 4.190 4.321 4.387 4.495
Expanded Tubular Performance
Nipple [in] 3.576 3.670 3.708 3.750 3.802 3.840
OD [in] 3.705 3.810 3.853 3.900 3.959 4.002
Nominal ID [in] 3.209 3.321 3.366 3.416 3.478 3.524
Mohawk Energy expanding the limits
Int. Yield [psi] 8,653 8,339 8,023 7,869 7,628
Collapse [psi] 4,104 3,800 3,496 3,344 3,112
Expanded Tubular Performance
Special Drift [in] 3.149 3.261 3.306 3.356 3.418 3.464
Int. Yield [psi] 10,846 10,410 10,241 10,058 9,838 9,681
Collapse [psi] 6,232 5,808 5,640 5,464 5,256 5,104
5440 Guhn Road Houston, TX 77040 e: info@mohawkenergy.com p: 713.956.7473
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
SAFETY TIPS WINNERS AND LO S E R S W H E N O I L PRICES DECLINE Obvious Players: There are both winners and losers in the massive unexpected decline and slow rise of the price of oil. The obvious winners are the average consumer at the gas pump. The obvious losers are the energy companies and their stock prices. The only way to get to the root cause analysis would be by speaking with the “experts” in the field, so here are some of the findings. Who Loses? From a Business Stand Point: The uninformed and easy way to look at this change would be to assume that lower gas prices create an economic boost, primarily via cash-strapped consumers having additional spending power with money not being poured into a gas tank. However, if you stop analyzing the situation there, you leave out some key affects to the economy that can create huge impacts to the stock market. Of course there is an impact to the average energy company and its related vendors, but what about the impact on the supporting industries around the oilfield? Less money being tossed around will impact housing markets, which will in turn affect real estate transactions, lenders, and appraisers. That in turn affects restaurants, shopping malls, and theme parks. There are countless different avenues we could follow to outline the picture, but the image has been set. While the bottom line will affect the pockets of large corporations, the disruption to the system will be more felt by the small business owners and their families.
From a Country Stand Point: The key question is whether a country is a net user or importer of its energy. The U.S., Japan, India, China and most of Europe are all net importers. Lower prices help importers import for less money thus supplying those countries we import from less money. In turn what helps importers hurts exporters like Russia, Iran, Venezuela, and Mexico. This turn in the economic world could lead to much higher levels of unrest in some countries that in combination with other political or military agendas could result in unintended consequences in the future. In laymen terms, one risk to calculate is a drop in oil price may create a black-swan type of events on the geopolitical front. Protecting your Portfolio: So how do you protect your portfolio? You evaluate your true willingness, ability and need to take risk. Then strive for the right amount of risk in your portfolio. That’s generally the amount of risk you can stomach while still having acceptable odds of hitting your long-run financial objectives. Even if you have the best of financial plans, assuming more risk than you should take on may cause that plan to end up in the financial trash heap as emotion overtakes logic. Aaron Campbel American Safety Services, Inc.
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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MARCH - APRIL 2015
TOP
FESTIVALS AND EVENTS IN TEXAS All across Texas, a variety of festivals, events and attractions are a great way to have fun and to spend time with your family. RUN FOR GOD - BEGINNER'S RUNNING PROGRAM THROUGH April 23 First Presbyterian Church, Midland, Texas 79701. 12PM - 1PM. Ever wanted to run a 5k, but didn't know where to start or were just scared? This is the place for you. We will learn about running together and will progress through 14 weeks of instruction, culminating with the Run For Babies 5k on April 25, 2015. PARADE OF QUILTS March 1-31 Flatonia - Czech us out! Shop owners display a profusion of heirloom and contemporary quilts throughout downtown stores during the month of March. Flatonia is located at Exit 661 on I-10, between Houston & San Antonio. (361) 865-3920 Email: flatoniacofc@sbcglobal.com Website: www.flatoniachamber.com 52ND ANNUAL FORT WORTH SHOW OF ANTIQUES & ART March 5-7 Fort Worth - Over 150 exhibitors from across the U.S. with a fun mix of all styles, eras and price ranges of antiques, art & vintage. Thurs & Fri 9am-7pm; Sat 9am-5pm. Will Rogers Memorial Center, $8
admission; kids free. Discount coupon at www.fortworthshow.com. (817) 291-3952. Show news at www.go2antiques.blogspot.com or www.facebook.com/fortworthshow. WINE DOWN AT PLEASANT HILL WINERY March 6, 13, 20, 27 - April 3, 10, 17, 24 and May 1, 8, 15, 22, 29 Brenham - “Wine Down” on Fridays on the deck and watch the sun set. Enjoy wine by the glass or share a bottle with friends. Cheese boards available. 3pm-sunset. Every Friday in March, April and May. Pleasant Hill Winery, 1441 Salem Road. (979) 830-VINE (8463) www.pleasanthillwinery.com 69TH ST. PATRICK’S DAY CELEBRATION March 12-14 Shamrock - Salute the Irish in Shamrock with the Donegal beardgrowing contest, carnival rides, parade, arts & crafts, rodeo events, Miss Irish Rose pageant, motorcycle rally, Lad & Lassie contest, and dance. (806) 256-2501 43RD ANNUAL REDBUD FESTIVAL March 12-14 Buna - Anticipated to be the most spectacular Redbud Fest since its inception 43 years ago! Salute springtime at Buna’s annual celebration with a parade, arts & crafts booths, musical entertainment, great food & carnival rides. Carnival opens on March 12 and runs March 13 & 14. (409) 994-5586 37TH GENERAL GRANBURY’S BIRTHDAY PARTY BEAN, BRISKET & RIB COOK- OFF March 21-22 Granbury - Hosted around the downtown Historic Courthouse Square, celebrate the birthday of the town’s namesake with arts and crafts booths, bean-eating contest, outhouse races, and entertainment. (817) 573-5299 www.granburysquare.com LIVINGSTON’S TRADE DAYS March 13-15, April 17-19, May 15-17, June 12-14 Livingston - Pedigo Park - Open year-round on the weekend before the third Monday (closed April). Two covered pavilions and openair lots accommodate over 350 vendors: arts, crafts, collectibles,
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PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
antiques, food. Hwy 59N, ¾ mile north of Hwy 190. Free admission. (936) 327-3656 Email: tradedays@livingston.net www.cityoflivingstontx.com TEXAS RANGER DAY March 14 Burton - Enjoy history, reenactments, cook-off, live music noon-8pm. Gate charge. Burton Heritage Society, 507 North Railroad Street. www.burtonheritagesociety.org STAGECOACH DAYS March 14, April 11, May 9 Anderson - Fanthorp Inn visitors experience cross country travel via stagecoach. Learn about the Inn’s history and 1840s-60’s stage lines connecting Texas towns. Presentations throughout the day. Coach rides 11am-3pm (dependent on weather & teams) with suggested adult ride donation of $10 & children $5. Open to all ages; children must be accompanied by adult. February through July & September on second Saturday. www.birthplaceoftexas.com HERITAGE FESTIVAL March 17-22 Nederland - Celebrate the area’s Dutch & Cajun heritage with tournaments, carnival, arts & crafts booths, pageants, Cajun foods & museum tours. Downtown on Boston Avenue. In its 42nd year! (409) 724-2269 www.nederlandhf.org
A MIDSUMMERS NIGHT DREAM March 27-29 Permian Playhouse. 310 W. 42nd Street. Odessa, Texas 79764. The Kaleidoscope Company presentation. Performance Dates and Times: March 27 & 28 at 8:00 pm and March 29 at 2:30 pm. (432) 550-5456 Visit our website at www.permianplayhouse.com for tickets information. LA BAHIA ANTIQUE SHOW AT LA BAHIA HALL March 27-April 4 Burton - La Bahia Antique Show (during the Round Top Festival) with dealers across the country offering a variety of antiques, collectibles, vintage items and porcelain restoration at the show. Country cooking all day. Free adm./parking. Labahia Hall @ 290W/237TX. March 27, 8am-8pm as 1st Friday Frenzy (Late Shopping), March 28-April 3, 8am-6pm and April 4, 8am-6pm. www.labahiaantiques.com. 2ND ANNUAL SCHULENBURG SAUSAGEFEST March 28 Schulenburg - Enjoy live music, sausage-making contests in five categories, street dancing, arts and crafts, children’s activities, antique cars & tractors, tasty foods and much more. Downtown Schulenburg on Historic North Main. 12noon-10pm. (866) 504-5294 or (979) 7434514 www.schulenburgsausagefest.com
COME AND TASTE IT Mar. 19, Apr. 17, May 21, Jun. 18, Jul. 16, Aug. 20, Sept 17, Oct 15, Nov 19 & Dec 17 Gruene Historic District / New Braunfels - Meet Texas’ best winemakers the third Thursday of each month. Enjoy complimentary wine and beer tastings, and learn directly from the craftsman. Live music and food samples complement the wines on Gruene Historic District’s Grapevine patio. Also live entertainment nightly at Texas’ Oldest Dancehall. 830-606-0093 www.GrapevineinGruene.com WWW.GRUENEMARKETDAYS.COM March 21-22, April 18-19 and May 16-17 New Braunfels - Shop the exceptional handmade quality of sculptors, potters, jewelers, unique craftsman & specialty Texas-made foods, while enjoying live entertainment & 25 specialty stores & restaurants. Historic Old Gruene. (830) 832-1721 www.gruenemarketdays.com RUFFLES AND RUST EXPO March 21 Ector County Coliseum Building G - 9am-5pm. A traveling boutique show. Featuring vintage, hand crafted, home decor and boutique items. Everything you could every want for you and your home. $5 admission and 12 and under are FREE 806-231-9822 camey@rufflesandrustexpo.com www.rufflesandrustexpo.com 32ND ANNUAL CELEBRATION OF THE ARTS March 27-28 Midland - Art Works! This event is set in Midland’s Downtown & Centennial Plaza. 65 Visual Artists in juried show in-doors, outdoor entertainment, Pet Parade, interactive arts experiences, festival refreshments & more. For additional information: (432) 687-1149, info@acmidland.org www.acmidland.org
SPRING MARKET DAY WITH TEXAS INDEPENDENCE RELAY EXCHANGE March 28 Flatonia - Arts & crafts, jewelry, hand-crafted one-of-a-kind items, food, drinks, music & more! CHEER on the TIR runners on South Main Street. Downtown Flatonia. (361) 865-3920 flatoniacofc@sbcglobal.net www.flatoniachamber.com MUSIC MAKES A CELEBRATION March 28, April 25, May 23, June 27, July 25, Aug 23, Sept 26, Oct 24 Anderson On these 4th Saturdays, experience life & music of early Texans & travelers at Fanthorp Inn. Tap a tambourine or take a turn on the dance floor led by our dance instructor. Costumed guides also describe workings of an Inn and its successful Innkeeper. 11am-3pm. Fanthorp Inn State Historic Site, 579 S. Main off Hwy 90 (ten miles east of Hwy 6). (936) 878-2214 www.birthplaceoftexas.com
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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Cares
Recent estimates tell us that over 9,800 local children don’t know where their next meal is coming from. Food 2 Kids is a community effort to feed these hungry children of the Permian Basin. With the community’s help, the program has grown to feed thousands of these hungry children each school year, but the need is far greater.
Food 2 Kids was founded in 2010 when the Junior League of Odessa partnered with the West Texas Food Bank, the Education Foundation and the Ector County Independent School District. In the spring semester of 2010, Food 2 Kids began feeding 415 hungry children in two ECISD elementary schools. By the end of the 2010-2011 school year, Food 2 Kids had expanded into four schools, and was feeding over 1,000 children. By the end of the spring 2015 semester, Food 2 Kids will be feeding over 2,300 children in 17 ECISD elementary schools. Food 2 Kids also serves schools in Midland, Pecos, Fort Stockton and beyond. Children are nominated for the program by parents, teachers and counselors. A child may be nominated if they meet certain criteria. The child must be enrolled in the reduced, or free lunch program and must be deemed to be at risk of not having regular meals over the weekend. We especially rely no teachers who look for signs of hunger, which affect a child’s ability to stay focused in the classroom. On Friday, sacks are discretely placed into student’s backpacks. Food 2 Kids has four different menus it designed that rotate every week.
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PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
While the food varies, each sack provides enough food to last the weekend and generally includes meat dishes, something fruit based, vegetables, drinks, cereal bars and a dessert. Proper nourishment is critical to helping our children stay focused at school so they can learn. Food 2 Kids has grown thanks to the help of our communities. We are continually humbled by the generosity of our neighbors. We thank those who volunteer their time and open their wallets. Without this support, Food 2 Kids would not be able to operate. As we look to the future and look at further expansion, we ask for your help to wipe out hunger in our school children. Please consider making a tax-deductible donation by following the link to the right. Also, please join us at our food sackings, which take place at 5:30 pm on the first and third Wednesday of the month, at our warehouse located at 202 S. Lincoln Ave. in Odessa, TX 79761. These sackings last for one hour and bring together our incredibly diverse community. Through the hard work of our volunteers we sack 3,360 sacks for hungry kids in about an hour. Where else can you donate such a short amount of time and help so many.
For more information about how you can help, become a volunteer or to donate visit www.food2kids.org
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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TECH
BITES
Source: www.cnet.com
ERICSSON SUES APPLE OVER PATENTS Apple just lost a $533 million patent case to Smartflash this week, and now Ericsson is likewise suing the company in a patent dispute. Ericsson is suing Apple over "critical functions" in its devices. The legal actions, announced Friday, relate to Ericssonowned patents. The company has filed two complaints with the US International Trade Commission and filed seven lawsuits in the US District Court for the Eastern District of Texas against the iPad and iPhone maker, alleging that 41 patents in total are being infringed on. Ericsson has also asked the trade commission to block Apple products in the US market. The patents in question include technology related to 2G and 4G/LTE standards, semiconductor components, user interface software, location services and applications, as well as the iOS operating system itself. Ericsson claims that Apple's global licensing agreement for Ericsson's patents expired last month and that Apple "declined" to take a new license based on fair, reasonable, and non-discriminatory terms -- known in the industry as FRAND. The company says several attempts were made to reach a solution with Apple, including "an offer for 32
both parties to be bound by a decision on fair licensing terms by a United States federal court." However, Apple allegedly refused. "By refusing Ericsson's fair and reasonable licensing offer for patented technology used in Apple smartphones and tablets, Apple harms the entire market and reduces the incentive to share innovation," Ericsson said. Ericsson's portfolio includes approximately 35,000 patents, and the company has inked roughly 100 deals with industry players to date. "Apple's products benefit from the technology invented and patented by Ericsson's engineers. Features that consumers now take for granted -- like being able to livestream television shows or access their favorite apps from their phone -- rely on the technology we have developed," Kasim Alfalahi, chief intellectual property officer at Ericsson said in a statement. "We are committed to sharing our innovations and have acted in
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
good faith to find a fair solution. Apple currently uses our technology without a license and therefore we are seeking help from the court and the ITC." In related news, this week Apple was ordered to pay $533 million in damages to Smartflash after being found guilty of willfully infringing on patents licensed by the company. While Apple plans to appeal the ruling, Smartflash isn't finished yet -- and has already filed a new lawsuit against the iPad and iPhone maker. Smartflash's new case is based upon the same disputed patents -- relating to the access and storage of data, digital rights management and payment systems -- but for devices not included in the original lawsuit, such as the iPhone 6, iPhone 6 Plus and iPad Air 2. Apple did not immediately respond to a request for comment.
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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PBE NEWS BRIEFS WATCHING THE BASIN
WESTERN REFINING BEATS ESTIMATE AS REFINING MARGINS SOAR Western Refining Inc reported a better-than-expected adjusted quarterly profit in late February as lower crude oil prices helped improve refining margins.
The company reported a profit of $130.9 million, or $1.33 per share, in the quarter, compared with a loss of $7.3 million, or 9 cents per share.
Growing output from the Permian Basin in Texas and New Mexico, where Western's refineries are located, has combined with inadequate pipeline infrastructure to create a glut and suppress crude prices in the region, boosting the company's refining margins.
Excluding items, Western earned $1.19 per share, above the average analyst estimate of 98 cents, according to Thomson Reuters I/B/E/S.
Western profits on the difference between the cheap crude it buys from the Permian and the refined products it sells at prices linked to the crude benchmark at Cushing, Oklahoma. The gap between the price for West Texas Intermediate crude at Midland in the Permian and the U.S. benchmark price at the pipeline hub in Cushing WTC-WTM averaged $3.13 per barrel in the fourth quarter, higher than $2.46 a year ago. Western said gross margins rose to $22.13 per barrel in the fourth quarter ended Dec. 31, from $7.99 a year earlier.
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Net sales were flat at $3.02 billion, slightly below analysts' average estimate of $3.08 billion. Western also recorded a $78.6 million charge in the quarter related to the value of its inventory, mirroring the $244 million charge recorded by peer HollyFrontier Corp in late February. Source: Reuters
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
WATCHING THE SHALE
WATCH THE SHALE SPREAD: BRENT VS WTI CRUDE OIL PRICES U.S. shale oil is deepening the discount of U.S. crude prices to global benchmarks, with the price gap turning into the de facto indicator of the health of American shale supply, a shale spread of sorts. The gap between West Texas Intermediate (WTI) and Brent expanded to its biggest in a year at almost $12 a barrel as U.S. oil stocks hit records while global demand supported Brent. The surging U.S. production and inventories point to an "oversupplied market which is hard to ignore," ANZ Bank said in a report late February. Prior to the rise of U.S. shale oil production more than half a decade ago, the spread between WTI and Brent
had moved very little for 20 years, largely hovering around zero. The emerging U.S. glut has since weighed on WTI, which is increasingly a more domestic price gauge than a global one, while non-U.S. benchmarks rise up and down according to demand from Asia and geopolitics in the Middle East. One factor that could narrow the spread would be a dramatic cutback in shale production as weaker crude prices challenge the economics of shale oil. The spread could shrink further if, or when, the United States adds to world supply with crude exports, which are banned for reasons of protecting national resources for domestic consumption. Source: Reuters
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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WATCHING THE STATE
WIND GENERATES MORE THAN 10% OF TEXAS ELECTRICITY IN 2014 In 2014, more than 10% of the electricity used in the grid covering most of Texas came from wind generation, according to the grid's operator, the Electric Reliability Council of Texas (ERCOT). Wind's share of the ERCOT generation mix grew from 6.2% in 2009 to 10.6% in 2014 as total electricity generation increased over the same period by 11.3%. The growth in wind generation is a result of new wind plants coming online and grid expansions that have allowed more wind power to flow through the system to consumers. Wind generation in ERCOT nearly doubled from 18.8 million megawatthours (MWh) in 2009 to 36.1 million MWh in 2014. Wind capacity has also grown substantially over the past six years (and much more so in the years before that), but wind generation grew at a faster pace, partly because transmission constraints that previously prevented wind generators from operating at their maximum capability were gradually removed through a state-directed transmission expansion program.
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As these transmission constraints were removed, more generation from wind plants (largely concentrated in the northwestern part of the state) could reach the state's population centers. The result has been a faster increase in wind generation than in wind capacity from 2009 to 2014. Wind's contribution to ERCOT generation is not evenly distributed throughout the year. In Texas, peak wind season occurs during the spring—March to June—before significantly dropping off during the summer—July to September. Based on data for the past six years, the four months from March through June account for on average about 40% of annual wind generation in ERCOT. Source: U.S. Energy Information Administration, based on the Electric Reliability Council of Texas (ERCOT)
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
WATCHING THE GOVERNMENT
SCIENCE APPLICATIONS TO BUY SCITOR FOR $790 MILLION Science Applications International Corp, a provider of information technology and engineering services to governments, said in late February it will acquire Scitor Corp, a smaller peer, for $790 million in cash. The deal is aimed at helping SAIC, which has a market capitalization of $2.5 billion, expand its offerings to the intelligence community and Air Force markets following its spinoff of Leidos Holding Inc in 2013. Scitor is owned by private equity firm Leonard Green & Partners LP. The deal, which was first reported by Reuters earlier on Sunday, is expected to close in May. Cuts in U.S. government spending, particularly in the areas of defense and security, have hit companies that rely on government servicing contracts. The deal is the latest example of the industry consolidating as a result. Late last year, another government services contractor, Engility Holdings Inc, acquired TASC, a provider of professional services to government agencies, for $1.3
billion. TASC also had private equity owners, KKR & Co LP and General Atlantic LLC. In its race to keep up with competitors such as Booz Allen Hamilton Holdings Corp, McLean, Virginia-based SAIC is seeking a presence and customers in all the major military departments and intelligence agencies. Reston, Virginia-based Scitor offers engineering and management consulting services to customers that include the intelligence community, the Department of Defense and other federal, state and local agencies and commercial enterprises. Leonard Green acquired it in 2007 for an undisclosed amount. SAIC reported net income of $181 million for the nine months to the end of October. Sagent Advisors LLC and Latham & Watkins LLP are advising Scitor, while SAIC is working with Citigroup Inc and Arnold & Porter LLP. Source: Reuters
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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WATCHING THE NATION
PETROLEUM REFINERY OUTAGE IN CALIFORNIA HIGHLIGHTS MARKETS’ QUICK PRICE REACTION On February 18, an explosion and fire occurred at ExxonMobil's refinery in Torrance, California. The Torrance refinery, the third-largest refinery in Southern California, has about 20% of the region's fluid catalytic cracking capacity and is an important source of gasoline and distillate fuel oil supply for Southern California. Unplanned refinery outages can have noticeable effects on liquid fuel markets, disrupting supplies of gasoline and distillate, particularly in regions that are tightly balanced, such as the West Coast (defined as Petroleum Administration for Defense District (PADD) 5). When refineries undergo planned maintenance, they make arrangements for alternative sources of supply to ensure that obligations are met. However, the sudden loss of production during unplanned outages can sometimes take days or weeks for markets to adjust. As a result, unplanned outages often result in a reduction in supply that causes prices to increase, sometimes dramatically. The severity and duration of these price spikes depend on how quickly the refinery problem can be resolved and how soon supply from alternative sources can reach the affected market.
San Francisco and Los Angeles in California. As a result, moving product to Southern California requires longer lead times. West Coast product markets reacted immediately to the situation at the Torrance refinery. Spot prices in Los Angeles (LA) for CARBOB (California Reformulated Blendstock for Oxygenate Blending) gasoline increased $0.22 to $2.02 per gallon (gal) between February 17 and February 23. Spot CARBOB prices increased from a $0.25/gal premium above the New York Mercantile Exchange (Nymex) Reformulated Blendstock for Oxygenate Blending (RBOB) front month futures contract, a standard pricing basis for gasoline, to $0.41/ gal above Nymex over the same time. This rapid price response is not unusual and is similar to what happened following past unplanned outages. West Coast supply disruptions in 2008, 2009, and 2012 caused spot price spikes that led to higher retail prices. As with previous disruptions, prices should stabilize as more information about the severity and duration of the expected outage becomes available. Source: U.S. Energy Information Administration
Bracketed by the Pacific Ocean and the Rocky Mountains, the mainland portion of the West Coast region (PADD 5) is relatively isolated from other U.S. markets and located far from international sources of supply, so the region is dependent on in-region production to meet demand. Additionally, California's more-restrictive gasoline specifications limit the availability of supply from other markets. Mainland PADD 5 has three distinct supply/demand centers near Seattle and the Canadian border, as well as 38
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
WATCHING OFFSHORE
OIL CASH CRUNCH TO SQUEEZE RIGS, OPERATORS OUT OF BUSINESS Offshore drilling rig operators are facing a cash crunch as oil firms hold back work and the shakeout will put vessels and possibly some operators out of business, Claus Hemmingsen, chief executive of Maersk Drilling, said. Rig firms are already delaying or cancelling vessel orders and some may have to merge while smaller, more speculative operators may struggle to refinance their debt, Hemmingsen told Reuters in an interview. Rig firms that drill offshore wells have been among the hardest hit in the oil service sector since crude prices dropped by half, because exploration is usually the first expense cut. The sector's troubles are aggravated by an abundance of capacity as new vessels ordered during the boom times are being delivered.
just the beginning," he said. Trade publication Rigzone said that fleet utilization has fallen to 78 percent in January from 82 percent a year earlier, almost entirely due to new vessels entering the market. Hemmingsen said Maersk Drilling, a unit of shipping conglomerate AP Moeller Maersk (MAERSKb.CO), would keep all but one of its rigs in the market and was in talks to secure contracts but expected some idle time. The firm is also maintaining its 2018 net operating profit after tax target of $1 billion, although Hemmingsen said this would require more vessels and the current environment was not conducive for new orders. Source: Reuters
"When the companies on the top of the food chain, the oil firms, have a problem retaining their profit, it puts tremendous pressure on the industry," Hemmingsen said. "This downturn has already taken a toll on some and it will last a while yet, so we'll see at least mergers, if not acquisitions, and we will see some of the smaller, more speculative drilling contractors getting into significant problems servicing their debt," he added. Day rates for the most advanced, deepwater rigs that peaked at over $650,000 per day less than two years ago are now below $400,000. Transocean (RIG.N), which operates the world's biggest offshore fleet, made a net loss in the fourth quarter while top rival Seadrill's (SDRL.OL) bottom line nearly halved as both wrote down the value of their business and earned lower revenue. Hemmingsen said that some operators are already in talks to delay or cancel orders, even if construction has already started. Firms are also planning to scrap older vessels. "Rebalancing is too much to ask in the short run but we've seen plans to scrap 15 to 20 rigs and I think that's MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
39
WATCHING THE WORLD
RUSSIA MAY ACCEPT MAJORITY CHINESE CONTROL OF BIG OIL AND GAS FIELDS Russia may consider allowing Chinese investors more than 50 percent stakes in its strategic oil and gas fields, an aboutface by Moscow that underlines its need for foreign help to develop energy reserves. While closely guarding control of the oil and gas fields that supply the lifeblood of its economy, Russia has forged alliances with some Western companies to obtain the knowhow it needs to tap hard-to-reach deposits. But now that Western sanctions over Moscow's role in Ukraine have all but halted that cooperation, Russia has overcome a "psychological barrier" and is ready to deepen its economic ties with China, Deputy Prime Minister Arkady Dvorkovich said. "We have a strategic partnership with China and now decisions are made much faster than before. In particular, we have a gas contract, a second one will be signed soon. Now we know China better: their motives and intentions are understood," he told a conference in the Siberian city of Krasnoyarsk. "There used to be a psychological barrier. Now it doesn't exist any more. We are interested in maximum investments in new
40
industries. China is an obvious investor for us." President Vladimir Putin has pushed for closer ties with Asia since the European Union and United States imposed sanctions on Russia last year over its role in the Ukraine conflict, plunging relations to lows not seen since the Cold War. Last year, he oversaw the signing of a deal, valued by Russian state-owned gas firm Gazprom at $400 billion, to supply China with 38 billion cubic meters of gas per year by pipeline from 2019. So far, Russia sells pipeline gas only to Europe. Most of Russia's oil production is based in western Siberia, where fields are running out. Any new areas for discovery, such as east Siberia and the Arctic, and hard-to-recover resources, would require foreign assistance. According to BP, Russia's proven oil reserves, the world's 8th largest, stood at 93 billion barrels at the end of 2013. Its gas reserves were at 31.3 trillion cubic meters, second only to Iran's 33.8 trillion. Source: Reuters
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polos
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flashlights knives
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Promotional Products • TV/Video Production • Graphic Design • Photography
432-559-5886 promoitems@mad-ads-media.com
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
41
RESTAURANT
BITES
STANTON DRUG There's something so alluring about an old-fashion soda shop that just draws people in. Maybe it's the original countertops from the 50's, or the nostalgic bars tools and quaint booths. Maybe it's the feeling you get when you walk into a building built in the early 1900's and the smells and sounds that go along with it. Or maybe it's just a innate craving people have for a simpler time. A time before we were inundated with social distractions like cell phones and laptops and instead, thrived on personal interactions with our fellow neighbors and workers. Whatever the reason is, it's no secret that the old fashion drug store and fountain shop located in the heart of Stanton has become a local staple and a travelers destination. The irony behind the well know landmark is that the owner is probably the youngest worker in the building. Colton Kidd actually took over the store about a month ago when the previous owner decided to retire. Colton grew up in Stanton and always had the dream of owning the drug store one day. Little did he realize it would actually happen. You may call it luck or fate but one thing is for sure, this Kidd had time on his side. When Colton graduated from pharmacy school in 2013, he got his first job at the drug store, where he always wanted to work as a pharmacist. Just so happens it was right around the time the previous owner, Kyle Kendall, was looking to retire after over 30 years. Now with over a year of hands on experience under his belt, it's Colton's turn to live his dream. He officially took 42
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
by Marcy Madrid
over the drug store and fountain shop in February of this year. Colton thought he was getting into the pharmacy business, but a pretty popular burger joint came along as part of the package. Kidd says Mary and Linda, who have also been at the store for around 30 years, make sure all the regulars and regular visitors get their daily fix of old fashion burgers and malts. The ladies go to the local grocery store every morning and stock up on about 80 pounds of fresh meat and vegetables to get them through their very busy days. It's not long after the duo pats out their patty's and cuts up their veggies that the grill part of store is flooded with more people than it can fit looking for a lunchtime fix that takes
them back to the good ol' days. Colton says the secret is cooking the fresh meat on a flat grill so it sears in its own fat. Add the touch of a couple ladies who have been making burgers for 30 years and a little magic happens between the two buns. That magic is what keeps oil patch regulars stopping by to scoop up 20 orders at a time to take to the rig or Big Spring and Odessa travelers making the drive for their usual. As most new owners, Colton said he will be looking at ways to make the store better in the years to come but he says the old fashion feel that keeps people coming back for more will always be part of the identity of Stanton Drug.
Stanton Drug CALL (432) 756-3731 FOR TAKE - OUT ORDERS
201 N. St. Peter St. Stanton, TX 79782 MEALS SERVED: BREAKFAST, LUNCH MONDAY THROUGH FRIDAY 8 AM -3:45 PM
Coltonkidd13@gmail.com MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
43
FAMILY WALLS by Sharon Lewis
Sharon Lewis is the Early Childhood Director for Mid-Cities Community Church. She, and her husband Jerry, have been blessed with 2 children, and 10 grandchildren.
I recently attended the funeral of my husband’s mother. She was a precious soul, and she will be greatly missed. As we all gathered to celebrate her life, I saw family I haven’t seen face-to-face or talked to in years. These are people I love. People whose company I really enjoy. During our short time together I learned of great nieces and nephews I did not even know I had. I remember when getting together as a family was a big deal, and not just the immediate family, but extended family too. As a young child, I grew up knowing all my aunts, uncles, and cousins; and I saw them all face to face at least twice a year. So, what happened? How did we let so many years pass without getting together as a family? I have been studying the book of Nehemiah in preparation for a Bible lesson for our preschool children at our church. Nehemiah was a Jewish 44
cupbearer in the palace of the king of Persia around 445 B.C. One day as he was going about his ‘royal’ duties, his brother came to the palace with news from his hometown, Jerusalem. The news was not good. The people in Jerusalem were in great distress because the walls of that city were broken down and the gates were burned with fire. This greatly bothered Nehemiah. So much so the Bible says, "He sat down and cried and mourned for many days." Nehemiah’s ‘bothered’ became a deep burden as he began to pray about the situation in Jerusalem. Then one day, he rose from his prayers with a determination to do something about it. Well, long story short…the king gave Nehemiah permission to go to Jerusalem to help rebuild the walls. This Jewish cupbearer from Persia, with God’s help, organized and lead the people of Jerusalem to rebuild the walls and
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
repair all the gates in a record 52 days, in spite of great opposition and a seemingly impossible task. What an amazing story! As our family reconnected at my mother in laws memorial service we began to talk about how sad it was that it took a funeral to get us all together. It was in that discussion that I remembered the story of Nehemiah and thought to myself, “somewhere along the way I think we all just got too busy, and our family walls came crumbling down”. Nehemiah was busy too. He was busy with his cupbearer duties in the king’s palace when God called him from his busy schedule to repair those old, broken down walls. I realized…this family needs a ‘Nehemiah’ to rise up and do something about this. We need someone so determined, that no matter the opposition he or she will take up the banner to organize and lead our family to rebuild the walls.
As we traveled home from that funeral, I was bothered by our family situation. So, I began to pray, and the ‘bothered’ became a burden. Then, I began to think, “Sharon, I think you are that 'Nehemiah’! Do something about this!!” So, even though I am busy, my goal for this year is to rebuild our family walls. I have to admit, the task seems impossible at the start. I will have to be intentional. I will have to push through the opposition. But, with the Lord’s help, I am determined to do this thing. He can, in fact, do the impossible! I would imagine we are not the only family with our “walls” down. What about your family walls? Are they torn down too? Does your family need a ‘Nehemiah’? And what about you? Are you bothered? If you are, then maybe, just maybe, you are your family’s Nehemiah!
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
45
U.S. RIG COUNT - TEXAS States &
through March 27, 2015
BAKER HUGHES RIG COUNT
RIGDATA RIG COUNT
Four Week Average 2013
Four Week Average 2014
Last Week
This Week
Four Week Average 2013
Four Week Average 2014
Last Week
This Week
Waiting to Spud
Texas RRC District 1
133
88
85
84
131
89
90
83
8
Texas RRC District 2
77
70
71
69
80
74
73
68
7
Texas RRC District 3
57
35
33
31
61
35
34
29
1
Texas RRC District 4
33
24
25
25
31
17
12
14
1
Texas RRC District 5
7
8
8
8
10
7
8
6
0
Texas RRC District 6
31
27
26
27
33
28
29
29
0
Texas RRC District 7B
13
5
5
6
14
12
13
7
1
Texas RRC District 7C
83
54
49
47
87
54
53
50
11
Texas RRC District 8
290
234
223
225
300
223
220
206
13
Texas RRC District 8A
38
19
18
15
37
15
15
12
3
Texas RRC District 9
21
10
8
4
32
11
9
16
1
Texas RRC District 10
67
28
25
28
68
30
30
34
0
Texas Total
843
602
576
569
884
595
586
539
46
U.S. Totals
1,773
1,354
2,003
1,424
1,387
1,302
76
Districts
1,310 1,267
COPYRIGHT Š 2015 RIGDATA P.O. Box 820547 Fort Worth Texas 76182-0547 1-800-627-9785 | www.rigdata.com This report is protected under United States and international copyright laws and is intended for the exclusive use of the subscriber. Any unauthorized reproduction, retransmission, distribution, publication, broadcast or circulation of this report to anyone, directly or indirectly, without the express prior written consent of RIGDATA is prohibited. To order additional report copies at a reduced rate or for a corporate site license, please contact: 1-800-627-9785 46
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
TOP 35 DRILLERS RANKINGS Each month we track the activity of all the drillers and compile the results into a report that identifies the top 35 out of 100 drillers based on their footage drilled. Updated monthly, these reports also detail the number of well starts and the number of directional wells drilled by each of the top 35 out of 100. through March 31, 2015 Company
Footage Drilled
% of Total
Average Footage
Well Starts
% of Total
Directional Wells
1
Helmerich & Payne, Inc.
8,147,489
19.8%
10,692
762
15.8%
727
2
Patterson-UTI Drilling Company, LLC
4,995,744
12.1%
10,908
458
9.5%
435
3
Nabors Industries, Ltd.
3,319,486
8.1%
6,788
489
10.2%
420
4
Seventy Seven Energy, Inc.
2,117,227
5.1%
10,278
206
4.3%
204
5
Ensign Energy Services, Inc.
1,702,768
4.1%
7,403
230
4.8%
138
6
Precision Drilling Trust
1,650,457
4.0%
8,552
193
4.0%
185
7
Unit Corporation
1,386,949
3.4%
10,587
131
2.7%
123
8
Pioneer Energy Services Corp.
1,048,584
2.5%
11,038
95
2.0%
87
9
Trinidad Energy Services Income Trust
814,885
2.0%
8,488
96
2.0%
66
10
Sidewinder Drilling, Inc.
812,701
2.0%
10,419
78
1.6%
73
11
Cactus Drilling Company, LLC
808,950
2.0%
10,644
76
1.6%
76
12
Xtreme Drilling and Coil Services Corp.
779,284
1.9%
12,370
63
1.3%
62
13
Pinnergy, Ltd.
690,250
1.7%
9,082
76
1.6%
76
14
Oil States International, Inc.
554,144
1.3%
6,841
81
1.7%
36
15
Advanced Energy, LLC
547,411
1.3%
8,553
64
1.3%
57
16
Precision Drilling (US) Corporation
462,874
1.1%
10,286
45
0.9%
33
17
CanElson Drilling, Inc.
448,150
1.1%
10,930
41
0.9%
15
18
Frontier Drilling, LLC
412,576
1.0%
9,377
44
0.9%
38
19
Superior Energy Services, Inc.
400,789
1.0%
10,277
39
0.8%
26
20
SWN Drilling Company
400,188
1.0%
4,708
85
1.8%
85
21
Savanna Energy Services Corp.
399,378
1.0%
9,509
42
0.9%
12
22
Pense Brothers Drilling Company, Inc.
391,700
1.0%
10,586
37
0.8%
36
23
Latshaw Drilling & Exploration Company
365,604
0.9%
9,140
40
0.8%
40
24
Cyclone Drilling, Inc.
303,951
0.7%
6,332
48
1.0%
44
25
Scandrill, Inc.
281,440
0.7%
11,727
24
0.5%
23
26
SST Energy Corporation
237,725
0.6%
9,143
26
0.5%
26
27
Robinson Drilling of Texas, Ltd.
227,800
0.6%
11,390
20
0.4%
2
28
ProPetro Services Incorporated
226,000
0.5%
11,300
20
0.4%
1
29
Basic Energy Services, Inc.
224,636
0.5%
6,607
34
0.7%
9
30
Bison Drilling and Field Services, LLC
218,465
0.5%
12,137
18
0.4%
12
31
Independence Contract Drilling, Inc.
214,591
0.5%
11,922
18
0.4%
18
32
Lewis Energy Group, LP
201,100
0.5%
11,829
17
0.4%
17
33
Orion Drilling Company, LLC
199,900
0.5%
10,521
19
0.4%
19
34
Cade Drilling, LLC
190,310
0.5%
11,894
16
0.3%
16
35
Aztec Well Servicing Co.
178,431
0.4%
6,373
28
0.6%
16
Total Top 100 for year 2015
41,209,640
100.0%
---
4,813
100.0%
---
RANK
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
47
TOP 35 OPERATORS RANKINGS Updated every month, we track and rank the top
35 out of 100 operators based on their footage drilled.
Keep track of the most active operators with details on their number of well starts.
through March 31, 2015
RANK
Company
Footage Drilled
% of Total
Average Footage
Well Starts
% of Total
Directional Wells
1
Anadarko Petroleum Corporation
2,922,876
7.1%
10,988
266
5.5%
266
2
Chesapeake Energy Corporation
2,420,998
5.9%
10,481
231
4.8%
231
3
EOG Resources, Inc.
1,415,711
3.4%
10,565
134
2.8%
134
4
Marathon Oil Corporation
1,397,719
3.4%
14,409
97
2.0%
97
5
ConocoPhillips Company
1,193,012
2.9%
8,228
145
3.0%
126
6
BHP Billiton Limited
1,152,417
2.8%
13,885
83
1.7%
83
7
Chevron Corporation
932,524
2.3%
4,832
193
4.0%
71
8
Pioneer Natural Resources Company
919,318
2.2%
14,592
63
1.3%
60
9
QEP Resources, Inc.
904,802
2.2%
12,064
75
1.6%
72
10
Exxon Mobil Corporation
888,992
2.2%
5,051
176
3.7%
90
11
Occidental Petroleum Corporation
859,213
2.1%
11,159
77
1.6%
68
12
Concho Resources, Inc.
784,755
1.9%
10,192
77
1.6%
55
13
Devon Energy Corporation
737,849
1.8%
10,693
69
1.4%
66
14
Encana Corporation
712,396
1.7%
12,283
58
1.2%
58
15
Whiting Petroleum Corporation
700,668
1.7%
9,869
71
1.5%
70
16
Continental Resources, Inc.
643,140
1.6%
7,226
89
1.8%
89
17
EP Energy E&P Company, LP
606,594
1.5%
10,110
60
1.2%
53
18
Noble Energy, Inc.
573,176
1.4%
9,882
58
1.2%
58
19
Energen Resources Corporation
530,300
1.3%
10,006
53
1.1%
49
20
Apache Corporation
516,337
1.3%
9,742
53
1.1%
43
21
SN Operating, LLC
485,500
1.2%
17,981
27
0.6%
27
22
American Energy Partners, LP
460,007
1.1%
11,500
40
0.8%
40
23
Oasis Petroleum North America, LLC
453,796
1.1%
10,805
42
0.9%
42
24
Antero Resources Corporation
431,050
1.0%
13,062
33
0.7%
33
25
CrownQuest Operating, LLC
408,200
1.0%
12,006
34
0.7%
1
26
Southwestern Energy Company
375,200
0.9%
4,576
82
1.7%
82
27
Laredo Petroleum, Inc.
371,000
0.9%
11,968
31
0.6%
16
28
Ultra Petroleum Corp.
363,651
0.9%
12,122
30
0.6%
30
29
Athlon Holdings, LP
356,466
0.9%
9,634
37
0.8%
13
30
Murphy Oil Corporation
347,000
0.8%
10,844
32
0.7%
32
31
EQT Corporation
345,234
0.8%
7,672
45
0.9%
44
32
EnerVest Management Partners, Ltd.
333,588
0.8%
9,531
35
0.7%
35
33
SandRidge Energy, Inc.
330,166
0.8%
5,693
58
1.2%
58
34
WPX Energy, Inc.
312,103
0.8%
6,640
47
1.0%
47
35
SM Energy Company
308,165
0.7%
7,704
40
0.8%
39
Total Top 100 for year 2015
41,209,640
100.0%
---
4,813
100.0%
---
48
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
Source: www.eia.gov
POTENTIAL MARKET IMPLICATIONS OF OUTAGE AT EXXONMOBIL'S TORRANCE, CALIFORNIA REFINERY On February 18, an explosion and fire occurred at the ExxonMobil refinery in Torrance, California. The Torrance refinery, the third-largest refinery in southern California, has about 20% of the region's fluid catalytic cracking (FCC) capacity and is an important source of gasoline and distillate supply. ExxonMobil's website indicates that Torrance produces about 117,000 barrels per day (bbl/d) of gasoline (about 15-20% of southern California's supply). Based on publicly available information, it can be estimated that Torrance also produces about 50,000 bbl/d of distillate and jet fuel (about 10% of southern California supply). Unplanned refinery outages can have noticeable impacts on liquid fuel markets, disrupting supplies of gasoline and distillate, particularly in regions that are tightly balanced, such as Petroleum Administration for Defense District (PADD) 5 (West Coast). While refineries make arrangements for alternative sources of supply during periods of planned maintenance to ensure that supply obligations are met, it sometimes takes days or weeks for markets to adjust to the sudden loss of production when an unexpected outage occurs. As a result, unplanned outages often result in a reduction in supply that causes prices to increase, sometimes dramatically. The severity and duration of these price spikes depend on how quickly the refinery issue can be resolved and how soon
supply from alternative sources can reach the affected market. The recent incident at Exxon's Torrance refinery in southern California is a case in point. PADD 5 is relatively isolated from other U.S. markets and located far from international sources of supply, so the region is very dependent on in-region production to meet demand. Additionally, California's more-restrictive gasoline specifications (CARBOB) limit the availability of supply from other markets. Mainland PADD 5 has three distinct supply/ demand centers (Figure 1) and is geographically separated from other markets by mountains to the east and the Pacific Ocean to the west. As a result, moving product to southern California requires long lead times. West Coast product markets reacted immediately to the potential loss of supply from the Torrance refinery. Spot prices in Los Angeles (LA) for CARBOB (California Reformulated Blendstock for Oxygenate Blending) gasoline increased $0.22 to $2.02 per gallon (gal) between February 17 and February 23. Spot CARBOB prices increased from $0.25 premium above the New York Mercantile Exchange (Nymex) Reformulated Blendstock for Oxygenate Blending (RBOB) front month futures contract, a standard pricing basis for gasoline, to $0.41 above over the same time. This rapid price response is not unusual and is similar to what happened following past unplanned outages. During a series of West Coast supply disruptions in 2012, LA-CARBOB spot prices spiked higher to $1.16/gal over the Nymex RBOB front month contract (Figure 2). The 2012 spot price spikes, as well as price spikes during supply disruptions in California in 2008 and 2009, resulted in price increases that persisted for an average of eight weeks and took, on average, two weeks to be passed through to retail prices. On February 23, average regular retail gasoline prices in California were $0.63/gal higher than the U.S. average, at $2.96/gal. California retail gasoline prices are typically $0.30$0.40/gal above the national average retail gasoline price. PADD 5 as a whole had an average price of $2.76/gal.
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
49
GASOLINE AND DIESEL FUEL PRICES INCREASE The U.S. average price of retail gasoline rose six cents from the week prior to $2.33 per gallon as of February 23, 2015, down $1.11 per gallon from the same time last year. The West Coast price increased 14 cents to $2.76 per gallon. East Coast and Rocky Mountain prices rose five cents, to $2.30 per gallon and $2.04 per gallon, respectively. Midwest and Gulf Coast prices increased four cents, to $2.27 per gallon and $2.11 per gallon, respectively.
The most immediate source of replacement product supply on the West Coast is regional inventories. As of February 20, diesel fuel inventories in PADD 5 are above the fiveyear average, and as a result supply is likely to be adequate assuming no additional disruptions or increases in demand. As of February 20, total PADD 5 gasoline inventories were just under 31 million barrels, sufficient to supply approximately 20 days of demand. However, EIA does not collect product inventories below the PADD level, and therefore does not know the inventory held in southern California. In addition, product exports from the region, to the extent they meet CARBOB specifications (and not all do), could be diverted to meet local demand. Replacement supply could also reach southern California from a variety of locations outside the region, with differing logistical limitations and lead times. Potential sources of alternative product supply include refineries in northern California and the Pacific Northwest, the U.S. Gulf Coast (USGC), and imports. Refineries in northern California as well as Tesoro's Anacortes refinery and BP's Cherry Point refinery in Washington State can produce CARBOB. In addition, some refineries along the U.S. Gulf Coast (USGC), a region that produces more gasoline than is consumed locally, and can also produce CARBOB. Resupply from these refineries, which would require a U.S. coast-wise compliant vessel, could take three to four weeks to reach southern California, taking into account both the time needed to manufacture and deliver CARBOB. CARBOB may also be available from SK Energy's refinery in South Korea. Shipping product from Asia could take about four weeks. EIA will continue to monitor West Coast product prices as the market responds to the unexpected loss of supply. As with previous disruptions, prices should stabilize as more information about the severity and duration of the expected outage becomes available. 50
The U.S. average price of diesel fuel increased four cents to $2.90 per gallon, $1.12 per gallon less than the same time last year. Only the Rocky Mountain price decreased, falling by a penny to $2.76 per gallon. The West Coast price increased seven cents to $3.07 per gallon. The East Coast price rose five cents to $3.01 per gallon, followed by the Midwest price which rose three cents to $2.83 per gallon. The Gulf Coast price increased by a penny to $2.80 per gallon.
PROPANE INVENTORIES FALL U.S. propane stocks decreased by 2.2 million barrels last week to 59.2 million barrels as of February 20, 2015, 32.6 million barrels (122.1%) higher than a year ago. Gulf Coast inventories decreased by 1.0 million barrels and East Coast inventories decreased by 0.7 million barrels. Midwest inventories decreased by 0.5 million barrels while Rocky Mountain/West Coast inventories remained unchanged. Propylene non-fueluse inventories represented 7.5% of total propane inventories.
RESIDENTIAL HEATING OIL PRICE INCREASES WHILE RESIDENTIAL PROPANE PRICE DECREASES As of February 23, 2015, residential heating oil prices averaged nearly $3.19 per gallon, almost 15 cents per gallon higher than last week, and $1.06 per gallon less than last year's price for the same week. Wholesale heating oil prices averaged $2.30 per gallon, nearly 19 cents per gallon higher than last week and almost $1.09 per gallon lower when compared to the same time last year. Residential propane prices averaged $2.35 per gallon, less than 1 cent per gallon lower than last week, and $1.12 per gallon less than the price at the same time last year. The average wholesale propane price increased by almost 3 cents per gallon this week to 75 cents per gallon, $1.09 per gallon lower than the February 24, 2014 price.
PERMIAN BASIN ENERGY MAGAZINE | www.PBEMag.com | MARCH 2015
MARCH 2015 | www.PBEMag.com | PERMIAN BASIN ENERGY MAGAZINE
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