Gas Prices to Hit All Time High?

Back in 2010, John Hofmeister, former President of Shell Oil, predicted gas prizes would soar to $5 a gallon in 2012 due to rising crude oil prices. However, Hofmeister missed his mark as they only reached $4 a gallon. Now today, Hofmeister is preaching that people should look out for that $5 a gallon scenario again.

Today, gas is $2.14, it’s lowest price since May of 2009. Hofmeister wants drivers not to get too comfortable with this price as he believes things will be very different later this year. With crude oil hitting below $46.50 a barrel today, Hofmeister believes crude oil will rebound back to its $80-90 price range and with that rebound, people will again be paying at the pumps. While the price of oil continues to decline, we did however see some resistance. Last week, the price of oil had its first rise in almost two months. This could be just the first of many signs to come.

Hofmeister believes that if we do not see $5 a gallon this year or early next, that it will at least happen sometime this decade. If demand growth continue to climb towards 100 million barrels a day and industry production falls short, we can very well see $5 a gallon. To help instill confidence in this theory, Ryan Lance, CEO of ConocoPhillips, also believes oil prices can rebound faster than anticipated, much like they did in 2009.

While Hofmeister is a credible person and we have every reason to believe him, other credible sources in the industry have different views on the future of gasoline prices. The US Energy Information Administration predicts an average gasoline price of $2.33 this year and $2.72 in 2016. Obviously this a very different prediction compared to Hofmeister. While Hofmeister was wrong in 2010, he still was not far off. Prices did in fact rise to $4, so do we take what he has to say seriously this time around?

For more, please visit ‘s take on the issue. For more information on drilling and oil news, please visit .

A Look into Land Drill Preparation

After surveyors have selected a site for oil drilling there are a number of things that go into the process of preparing a drill site.  Mounds of logistical hurdles and physical obstacles are encountered along the way.

First the surveyors will determine the boundaries of the site and arrange environmental impact studies of the location, should they be required.  From the oil company’s side of things, they’ll need to sign lease agreements in most cases as well as right of way accesses and titles for access to drill the area on land.  Offshore, legal jurisdiction of the site will have to be arranged.

Once legal issues are cleared up there the drilling team can prepare the site for the drilling procedure.

On land, crews will have to:

  • Make sure that the land is cleared and leveled.  If unaccessible, access roads will have to be built for equipment to get to the site.
  • Find a water source.  Because drilling requires a water source there will have to be one that is made available to the site.  If there isn’t a natural source nearby, the crew prepares the site by digging a well.
  • Dig a reserve pit.  A reserve pit is used to dispose of any excess rock and mud that comes from the drilling process.  To avoid harm to the environment the pit is lined with a sturdy plastic sheet and should the site be in an ecologically sensitive area, the remaining rock and mud will be disposed of in a safe location and placed in a mobile truck.


The hole must then be prepared by digging a cellar.  You can see an example of what a cellar looks like to the right.  It is dug around the actual location of the hole in a square or rectangular fashion.  This, paired with a succession of other holes around the site, allows the rig to rest safely on the ground and provides a work space for those near the hole made for drilling.

A small truck then usually takes the drilling responsibilities on first.  Because the first hole will be shallower than the main section of the drilling, a small truck handles the responsibilities before the main rig then comes on.  This first hole is a shallow and larger hole from what will be the final product.  Other holes will also be dug nearby to help store equipment.  After this initial process the land rig is brought on to finish the remainder of the drilling.  You can find a numbered key here to see the different pieces of equipment on your average land rig.


Land Rig Parts

How equipment is brought to the site is determined from its remoteness.  It isn’t uncommon for equipment to be brought in by helicopter or barge and in some cases barges become the drill site, as they are able to access inland water.  An example of this would be a lake or a marsh.

For even more information on the preparation process of oil drilling be sure to conduct this source .

Finally, enjoy the following video from Industrial3D for a visual representation of the process.

SlideShare Presentation

Powder River Basin in Wyoming

With flagging industry exacerbated by the economic downturn in 2007, many areas in the United States have become economically depressed over the last fifty years. In areas that once provided blue collar workers with a plethora of factory or mining jobs, such as West Virginia, but have been in decline, many have cashed in on the expansion in domestic oil and gas drilling. Wyoming, too, has been in decline for decades, but now finds itself a potential poster child for oil- and gas-driven economic revitalization.

maritimedrillingschool_basin Oil production in the Powder River Basin in northeast Wyoming had been flagging since the mid-20th Century; however, according to study released by the U.S. Energy Information Agency, this trend of decline has effectively been reversed thanks to advancements in extraction technologies such as hydraulic fracturing. In 2009, production reached an average of around 38,000 barrels per day during the first quarter, with a yearly total of over 17 million barrels.

Since then, 590 new wells have been built. In 2013, figures supported by data from both the U.S. E.I.A. and the Wyoming Oil and Gas Conservation Commission show that the new wells and improved practices drove production to around 78,000 barrels per day, reaching 30 million barrels by the end of the year. Much of this increased production has actually come from the older wells in Campbell and Converse counties, where newly improved methods have once again made it profitable to extract. In effect, oil production has been doubled over the last five years, a welcome return for oil and gas companies and a wave of relief to workers feeling the strain from the economy.

Plans for expanding the extraction operation are ongoing. Currently, the U.S. Bureau of Land Management is studying the potential for Converse County, Wyoming to support the construction of over 5,000 additional wells over the next 10 years. With production having doubled in the last five years from just under 600 wells, the prospects of the increased production that would come from the addition of 5,000 wells over ten years are tantalizing.

There is sure to be oil and gas ready to be tapped for years to come, but industry economists acknowledge that their profitability will be largely predicated on domestic oil prices. Domestic oil prices have been declining over the last quarter, but as long as the price remains above $90 per barrel (the price is currently at $92 per barrel), experts say that production will still be viable.

IEA Video

from on Vimeo .

Whiting and Kodiak Combine

On Sunday, Whiting Petroleum Corporation announced that they would be buying Kodiak Oil & Gas Corporation. This coming from the New York Times .  By doing so they would buy their $3.8 billion in stock and would take on the company’s $2.2 billion in debt as well.  Both companies have a large presence in the Bakken and Three Forks sectors.  Each of them is also known for their exploration and large scale production.



Now combined, they will be the largest producer in their region.  They are expected to produce more than 107,000 barrels of oil per day.  According to chief executive of Whiting, James J. Volker, this was the main reason they came together.  They will no have 3,460 future drilling locations and more than 855,000 net acres to work with.

Each company is based in Denver and for years they were each other’s competition.  Kodiak chief executive, Lynn A. Peterson, even mentioned that they are very similar and that “It was a natural fit.”  By working together, each is looking to find cost savings.

James J. Volker explained that he hopes the savings will reach a billion dollars.  He expects most of the savings to happen in the next five years.  Lynn A. Peterson acknowledged that he agreed with Volker and the thinks it is a good deal for shareholders.  Each man also commented on how much upside they see.  There is so much potential for each company by joining together that they wan the shareholders to be excited.  They also want the share holders to participate in this upside.

With the partnership, Whiting shareholders will now own 71 percent of the combined company.  Kodiak shareholders will own 29 percent.  The Kodiak shareholders will also receive .177 of each Whiting stock for each share they own from Kodiak.  This approximates to $13.90 a share in the current market.

Canadian Association of Petroleum Producers

The pace of the booming oil sands expansion is threatening to be slowed by high costs and transportation issues.  The return on investments are going to be looked at for a long time as global producers try to weigh their options.  The Canadian Association of Petroleum Producers (CAPP) have lowered there growth forecast and increasing concerns about delays and competitiveness amongst parties has caused CAPP to lower their projections.

maritimedrillingschool_pipeline Still, expected growth has been expressed by CAPP, saying that they believe come 2030 that oil sands output will go from 1.9 million barrels a day in 2013 to 4.8 million.  Usually conventional crude production would be expected decline as a result but CAPP is predicting it will grow by 200,000 barrels a day every year for the next 17 years.

The oil sands slowing down is really a result of two things, according to The Globe and Mail .  First, capital costs are rising, especially in Alberta.  Second, there is a strong worry that pipelines that are critically needed will not get built.  These concerns came from CAPP Vice President Greg Stringham.

The forecast of the industry also comes with the government’s preparation to announce their decision on the Enbridge Inc.’s Northern Gateway pipeline that has been shrouded in controversy.  The pipeline would carry 520,000 barrels per day from the oil sands bitumen to British Colombia’s coast from shipments to Asia-Pacific markets.  If the project gets the green light and Ottawa decides it feasible, Enbridge will have a long road ahead to get confirmation from First Nations communities, they will have to meet all the regulatory conditions and no doubt they will need to handle the countless lawsuits that will come from the project.

CAPP’s estimate, considered bullish by The Globe and Mail, will require a greater rail capacity and need for more pipeline access.

Oil and Gas Prices Aligning

maritimedrillingschool_oilandgas There is an interesting dynamic taking place in the oil and gas industry right now.  The share prices for multiple primary producers have gained.  This is atypical, as a gain in crude and gas prices rise, margins for refining typically fall and vice versa.  If refining margins rise crude and gas prices typically fall.  This means, as outlined by a Business Standard article , that the pure refiner profitability, or that of a refiner-retail marketer, are oft inversely congruent with producers profitability.

So what happens when both sides are gaining?  Typically the process implies that if primary prices rise it’s because of the company’s control of production makes money, that means you can expect refining margins to show improvement when primary prices decline.

India has even further issue with retail.  The prices are controlled by the Indian government and which is charged with compensating with direct payments to the retailers themselves.  This results in refiners, or as Business Standard puts it “refiners-cum-marketers,” end up losing money at the petrol pump on many of their products because of the subsidy being underpaid by the government.  This keeps refiners from the private sector looking elsewhere to other markets where they are getting more bang for their buck.  Because of this the public sector dominates the market and the upstream sector is somewhat responsible to shoulder the burden of losses which the government issued price controls enforce—minimizing the ability to maximize on profits regardless of gas and oil prices.

The logical and deemed likely outcome is that prices will be more closely aligned with international levels moving forward.  Because the pricing formula remains controversial, we will see India, a major gas importer, try and benefit from the domestic gas production market by linking the market with international prices.  This makes the pricing formula a prime candidate to be modified.

Hello world!

Stay in touch with Maritime Drilling School’s blog.  There will be many posts to come!