High-Grading in Houston

Catching a cab to go to Day One of Summer NAPE 2012 was more than a little uplifting.

First thing to catch one’s attention were two small U.S. flags fluttering on either side of the cab’s meter. The second was to hear the driver’s refrain of “God Bless America,” even though more than 20 years had passed since he first came to U.S. shores.

My new acquaintance was in tune with the varying demand for cabs, depending on whether a convention was in town. An upsurge of business due to NAPE? “God Bless America.” Efforts by his daughter to help him with his English, over his wife’s concern his feelings would be hurt? “Why hurt? …if I am improving? God Bless America.”

Striving constantly to improve one’s lot was in clear focus here, and it is something that likewise is played out over and over in the E&P sector as companies high-grade oil and gas prospects in their portfolios. This was evident in spades at NAPE, where over 400 exhibitors had prospects and producing properties on show in an attempt to garner attention, attract partners and financing, and move projects closer to a spud date.

It was hard not to notice the marked upsurge in horizontal Mississippi Lime prospects on display. This came as no real surprise, as on the flight down to Houston it happened that the passenger next to me was also headed to NAPE. What did he plan to show at the convention? Horizontal Mississippi Lime. And in a rough count of prospects on display, a like answer probably applied to two dozen or more exhibitors.

Somewhat surprising was the sizeable population of properties on show in the Williston, given the fewer headlines generated by the Bakken/Three Forks plays recently. But perhaps this was just a sneak prelude to QEP Resources Inc.’s announcement that it was bulking up in the Bakken by buying a $1.38-billion package of properties, including 27,600 acres in a consolidated block. Allowing $75,000 per barrel per day for production, analysts valued the acreage at $21,500 per acre—by far a new high for the basin.

Of course, the Utica/Point Pleasant shale play also had a strong showing, buoyed by early tests by Chesapeake Energy Corp. and more recent results by Gulfport Energy Corp. and EV Energy Partners. Presenting at the NAPE 2012 Business Conference, Hal-con Resources president Steve Herod noted the Utica was among the company’s targeted plays; others include the Woodbine, Tuscaloosa Marine shale, Bakken and Mississippi Lime. Herod estimated that as many as 100 wells had now been drilled in the Utica (a good many presumably drilled but yet to be completed). Halcon’s first Utica well is expected to spud later this quarter.

What of the other basins? As Global Hunter Securities noted in July after its conference, there are easily another dozen or more resource plays making headway, many of which weren’t even competing for investors’ mindshare a few years ago.

How significant will be the impact of these competitive spirits? A look back at natural gas—that now-ignored stepchild—shows that 15.7 billion cubic feet per day of incremental gas was brought onstream between January 2007 and May 2012, according to Business Conference speaker and IHS vice president Pete Stark. This offset what otherwise was expected to be a need for 7-to 9 billion cubic feet per day of imported liquefied natural gas. Moreover, in April of this year, natural gas used in electricity generation rose to a level that matches coal—for the first time ever—noted speaker Scott Tinker, director, Bureau of Economic Geology, University of Texas.

New resource plays have given the U.S. “a massive competitive advantage,” enhanced by a widening West Texas Intermediate-Brent oil price spread, said Statoil vice president Stephen Bull. However, even as this is acknowledged in Europe, overcoming resistance to unconventional resource plays there remains a challenge. In the U.S., meanwhile, some 500,000 manufacturing jobs have been added since January 2010—with many more on the horizon—due to the U.S. advantage in energy, said Dow Chemical director Ken Bromfield.

This takes one back to the taxi driver who—in spite of his lack of formal English skills—could check off countries posing most risk to the economic outlook: Greece, Spain, Italy. He had a relative in Europe, but no inclination to move there. “God Bless America!”