POWER PLAY
Current energy trends discussed in Energy Chat
Readers had questions about the future of energy and industry companies in this month’s edition of The Oklahoman’s Energy Chat held Tuesday on NewsOK.com. Here are some of the questions and answers provided by The Oklahoman’s Adam Wilmoth and Jack Money.
Q: When are natural gas prices going to finally rise?
A: Demand has increased and stabilized as natural gas increasingly has been used for electricity generation. But even so, natural gas prices have been stuck around $3 for much of the past three years, as they’ve been held in check by vast increases in natural gas production.
The Marcellus and Utica Shale fields in Pennsylvania and Ohio have large amounts of relatively inexpensiveto-produce natural gas, and increased drilling in Oklahoma and Texas also produces large amounts of natural gas in this part of the country.
Demand is likely to continue to grow for natural gas, both in the power generation and export markets, and Oklahoma producers likely are soon to have more direct access to exports. Houston-based Cheniere Energy is working on a $1 billion, 200mile Midship Pipeline that would begin in Kingfisher County and transport natural gas from the STACK, SCOOP and Arkoma Basin to the Gulf Coast where Cheniere operates the country’s first and so-far only natural gas export facility. Several other liquificiation and export facilities are under construction or in the planning process.
Q: Which of the large Oklahoma City-based oil companies do you see as positioned for the most growth in the near future? What about smaller companies? A: Many Oklahoma companies of all sizes have positioned themselves to take advantage of the state’s high-producing and relatively low-cost oil and natural gas fields. The bigger
companies like Devon Energy and Continental Resources have staked out strong holdings in the STACK and SCOOP. Privately held Antioch Energy is among several looking further east into the state’s Arkoma Basin. Pipeline companies like Enable Midstream Partners and Tall Oak Midstream are building pipelines and
processing infrastructure throughout the area.
Several out-of-state companies also have large or growing interests in Oklahoma fields. Houston-based Newfield Exploration named the STACK and is the leading producer in the area. Austin-based Jones Energy also is active in the MERGE, which is the area between the STACK and the SCOOP.
Q: The Trump administration opened part of the Alaska Wildlife Refuge for drilling, but
got very few bids. Now, it’s discussing offshore drilling on the Atlantic. With shale being so productive, do companies really want to drill these more expensive areas?
A: There’s no doubt there are companies that do nothing but offshore drilling and are looking for new resources to develop. But we think you are on to something. As an investor, we’d want to put our money into projects that get much more return without nearly as much risk.
Throughout much of the oil industry’s history, oil has been considered a scarce resource, forcing companies to go wherever the oil was. Their reward was that they could sell whatever they found, and at strong prices. But with the technology and techniques that have unlocked shale and other dense rock throughout the continental United States, companies have access to large amounts of oil in an area where workers and infrastructure are plentiful.
Q: Are shareholders of local public energy companies
demanding those firms become more profitable rather than funneling revenue back into operations?
A: Yes. There is growing pressure for companies to adapt to the new supplyrich world. Before, when demand outpaced supply, replacing reserves and increasing production had been critical for individual oil companies and for the industry. But with the improved technology and shale development, the industry has seen a supply surplus for the past three years, and the situation would
be much worse for the industry if OPEC and Russia had not chosen to voluntarily limit their production.
In the current environment, producing as much as possible is not the top goal. Operating profitably and within cash flow now is more important. Shareholders also have lost much of their investment in recent years as stock prices have plummeted and many companies have sought bankruptcy reorganization. Investors want reassurance that won’t happen again soon.