Enhanced gas recovery & the good folks at DGOC

The Oilholic just got back from a quick turnaround research trip to the US Appalachian Basin covering the hydrocarbon rich prospection patch between Morgantown, West Virginia and Pittsburgh, Pennsylvania.

The latter being that promised American departure point yours truly told you about in 2016, where even the airport authority is privy to the proceeds natural gas! 

Having spent the last six months being convinced by academics and policy wonks that the Appalachian Basin is in trouble given oversupply, pipeline capacity issues, and the prospect of sub-$2/MMBtu Henry Hub prices, it was a breath of fresh air listening to the good folks at Diversified Gas and Oil Plc (LON:DGOC).

The company is currently listed on AIM, has formally announced its intention to move to London's main market and says that business is good. DGOC's simple, effective modus operandi is going after mature long life conventional wells in the region, often neglected by exploration and production firms obsessed with unconventional shale exploration.

The company's CEO Rusty Hutson (fifth from left), COO Brad Gray (second from left) and their team on the ground in Pennsylvania took this blogger around their patch explaining their methods, which include deploying a surprisingly low amount of contractors on site, entrusting employees to chart cost effective, efficient and resource maximising pathways, and of course some prudent management.

Hutson and Gray are also pretty acquisitive almost, always fishing around for primarily natural gas assets they can buy, often at low cost, to turn them around. To give the readers a flavour, recent sellers to DGOC have included the likes of EQT, CNX and Anadarko.

By drilling few wells, and mainly operating and maximising already onstream wells totalling over 60,000, team DGOC believe they can make a decent margin even at $2/MMbtu Henry Hub prices with smart strategic hedging, including hedges stretching 10 years out in the case of some instruments they have deployed.

If enhanced hydrocarbon recovery will bring about a new output wave stateside as many market commentators think, DGOC's contribution is over 92,000 barrels of oil equivalent per day (boepd) to that pool and rising.

You can expect more of the same, and more, Hutson assures the Oilholic. More observations from the trip to follow for publishing outlets but that's all for the moment folks! Keep reading, keep it 'crude'!

Addendum I - 27.09.19: Thoughts via Rigzone - 'Smart' Appalachian Operators Can Handle Sub $2 Natural Gas. Click here.

Addendum II - 07.10.19: Thoughts via Forbes - Enhanced Recovery Maverick: Meet West Virginia Oilman Taking Resource Maximization To New Heights. Click here.

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© Gaurav Sharma 2019. Photo I: Morgantown, West Verginia, US from the air. © Gaurav Sharma, September 2019. Photo II & III: Gaurav Sharma onsite with DGOC personnel in Pennsylvania, US © Ben Romney, September 2019. 

Two crude charts that say it all

We are nearly at the end of the third quarter of the current oil trading year and the Oilholic has two relevant charts for you. The first figure below (click images to enlarge), offers a glimpse into the OPEC Crude Basket of its member exporters' prices, and it is currently averaging just shy of $65 per barrel. 

The second figure tracks the Friday closing prices of oil benchmarks year to date, which points to the fact that oil futures, while volatile, are still oscillating in a fairly predictable range, unable to breach a $50 per barrel floor or meaningfully escape a $70 per barrel ceiling.

Figure I

Figure II

As this blogger has said before; oil prices remain range-bound and are going nowhere fast. Keep reading, keep it 'crude' folks!

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© Gaurav Sharma 2019. Charts: Figure I - Direction of OPEC's crude basket. Figure II - Friday closes of oil benchmark prices, year till Friday, 23 August, 2019  © Gaurav Sharma, August 2019

Various media missives on energy market

The last fortnight has just zipped by with so much going on in the energy market that the Oilholic did not get time to pen his thoughts here (apologies!). However, here are a plethora of thoughts for various publishing outfits on various energy related subjects. 

First off, despite all the geopolitical pressures, worries of an escalating trade war continues to be the dominant bearish sentiment in the market and could turn mildly bullish if resolved. So here are some thoughts on Forbes in defence of those with bearish oil price forecasts who some say are being complacent, alongside a note on the prospects of US Midstream stocks. 

And a take on why Formula E versus Formula 1 motorsports offer a microcosm of the tussle for human mobility. Away from Forbes here is yours truly's article on the Big Data tsunami that is heading the oil and gas industry's way via Rigzone.

Finally, here's a take on the cybersecurity challenge the energy industry faces on Energy Post (behind paywall). More on this mad, mad crude market soon. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2019.

Gauging Wall Street's 'crude' mood

The Oilholic has just about rounded up a near week-long power markets trip to New York, including a visit to understand the energy supply dynamic of the City’s landmark Rockefeller Center courtesy of industry colleagues at ABB, and a weekend of Formula E racing. 

But when in New York City old habits die hard, and this blogger rarely misses opportunities to discuss the oil market direction with fellow analysts and crude traders. The latest visit was no exception. Even New York's weather of the past week chimed with what we've seen in the crude market. On Thursday (July 11) the Oilholic arrived to a rain drenched Wall Street (above left) full of soggy bears with both oil benchmarks on the rise and WTI futures even touching $60 per barrel at one point (Brent - $66.52/bbl & WTI $60.20/bbl). 

Yet by the time yours truly packed it in a week later, New York and its Wall Street oil market bears were again basking in the sunshine (Brent at $61.93/bbl & WTI $55.30/bbl) even if Iran's grab of a UK-flagged Swedish-owned oil tanker Stena Impero in the Strait of Hormuz added another dollar or two per barrel. And for all the kerfuffle, the inescapable truth is that both benchmarks have stayed range-bound. 

The Oilholic has assigned the reasons as - the abundance of US light crude (especially copious amounts being exported to Asia), deep concerns over global demand (and a possible negative quarter if not a full blown recession for the US economy on the horizon), and supply dynamic largely outweighing OPEC cuts over the near-term.

One has also said it on record that if the oil market bears are to be tamed, the key bullish factor on the horizon is not the Iranian shenanigans in the Persian Gulf (short of an unlikely all out war), but the easing of US-China trade tensions. 

Putting these thoughts to a select group of Wall Street analysts this blogger has known for over 10 years, came up with unsurprisingly similar conclusions. Ok, discussing market direction with a beer in the Fraunces Tavern in the company of seven industry acquaintances is hardly a scientific poll, and more of an indicative opinion – but whichever way you look at it, few put forward an obvious bullish breakout factor that would pull the oil price from its current range. 

Many see a $70 level as a near-term possibility for Brent, as does the Oilholic, but few reckon the level would be meaningfully capped given clouds on the 2020 horizon. 

More so, many agree that OPEC’s market credibility is now tied to how much and how far the Russians go along with its – or should we their own – agenda, as the Oilholic recently wrote for Rigzone. 

Away from the near-term, most expect the US production to provide a meaningful buffer for a minimum of five years. In that time, the supply-demand dynamic is bound to face profound changes and resulting scenarios could be materially different from where we currently are. To sum it up, the Oilholic has a $65-70 per barrel 2019 average price for Brent, and $55-60 per barrel for WTI; with both leaning towards the lower end of the range, bar a full-blown conflict in the Persian Gulf. 

As one wrote for Forbes, right after OPEC’s twice-delayed oil ministers’ summit; 2020 could get even more bearish. Many known contacts on Wall Street share that opinion, and the time they spared at such short notice this week is truly appreciated. And on that note, its time to say goodbye to NY Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2019. Photo 1: New York Stock Exchange, NewYork, USA. Photo 2: Wall Street, Lower Manhattan, New York, USA © Gaurav Sharma, July 2019. 

Sustainable 'vroom' at NY Formula E circuit

The Oilholic has spent the last two days watching frantic motorsport action of a different kind here in the Big Apple accompanied by background vroom that's milder, greener, zero-emission and most certainly less audible compared to petrohead outings. 

Welcome to Formula E – the world's first fully electric global motor racing series – with several ex-Formula 1 converts both in and outside the drivers' cockpit. The 2.37km racetrack with 14 turns in Brooklyn's Red Hook neighbourhood, adjacent to the cruise ship terminal, saw twenty-two cars compete for 45 mins plus a final lap in the championship's concluding race in Sunday.

After all the racing, crashing, jostling and competing was done and dusted, Dutchman Robin Frijns claimed the race victory, while Briton Alexander Sims, and Swiss driver Sebastien Buemi finished in second and third respectively.

Of course, the day in the New York sunshine belonged to Frenchman Jean-Eric Vergne of Team DS Techeetah, who became the first double Formula E champion at the season's finale. 

Going into Sunday's (July 14) race, Mitch Evans and Lucas Di Grassi were championship contenders, and both needed at least a race win to claim the title. However, Di Grassi's attempt to overtake Evans ran them both into the wall, handing their rival the advantage. The action certainly delighted the competition's backers. 

Not least, Swiss electrification and robotics giant ABB; the headline sponsor of the Formula E circuit. The company feels the sport is a joy for motoring purists. Consider this - the 2019 championship had eight different winners in the first eight races, although Vergne ultimately surged ahead with a second victory of the season in Monaco.

From ABB's perspective, the obvious brand equity and exposure aside, the company is using its track connections and participation as a "fertile testing ground" for global mobility's inexorable march to a low carbon, zero-emission future. 

Frank Muehlon, Managing Director, EV Charging Infrastructure at ABB, told the Oilholic that the company's association with the sport is not just a routine sponsorship but a vital partnership. "From the circuit safety cars to all the teams, our charging infrastructure is at the heart of it all."

As headline sponsor, the company partners with all racing teams and offers bespoke high power charging equipment to sister races such as Jaguar Land Rover's I-Pace e-trophy, which runs teams of its I-Pace electric SUV model before most, if not all, of the Formula E races. 

"Advanced data gathered at this very race, and others over the course of the season, feed into our research and development efforts run from three global labs (two in Europe and one in China)."

Muehlon added that ABB is automaker "agnostic."

"We are an equal partner to all, and by that I don't imply just the teams you see on track, but anyone in the global automaking world who is getting serous about electric vehicles. Let's face it, that's pretty much every global automaker these days."

At the heart of it all is promoting e-mobility, bringing down charging times and enhancing battery performance. On the latter point at least, Formula E offers a case in point. Not that long ago the drivers needed to change cars midway through the race as the battery could not cope with the rapid drain on it. 

However, with an enhanced battery life and back up charging technology, the current Generation 2 Formula E cars last the length of a 45 minute race plus an additional lap.

Looks like we are in for an 'electrifying' progression ahead when it comes to electric mobility, both on and off-track, ABB is certainly counting on it. That's all from the Brooklyn racetrack folks with no petroheads around.   

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© Gaurav Sharma 2019. Photos 1 & 2: Action from ABB Formula E 2019 race in Red Hook, Brooklyn, New York, USA on July 14, 2019. Photo 3: Race winners address the media. Photos 4: Jaguar I-Pace safety car © Gaurav Sharma, July 14, 2019.