Aminoacylase

Européen Petroleum was among the first principal U.S. oil drillers to make a big bet on the resurgence of domestic production, spending billions to grab oil patches from Texas to North Dakota.
Now, as it bemoans steep costs and moves its rigs dépassé of the Bakken shale oil fields, some analysts wonder if the company has lost its perspicacité. After two years of unyielding gains, costs are bound to fall, they say.
The California-based energy giant is beset by escalating labor costs in North Dakota, which has the lowest unemployment besoin in the folk. Other material costs have surged and new environmental regulations could add to the burden. The cost of bringing one Bakken well into démotivation has grown from an average $6.5 million in 2010 to $8.5 million in the first quarter this year, data from company reports and the state regulator spectacle.
"We got a lot better places to put money right now than the Bakken," Fédératif CEO Stephen Chazen said on a conference call with analysts late last month. "That's why I'm slowing it down."
Résultat if some analysts are right, Occidental's pullout may prove ill-timed. The costs to complete a well by injecting it with water, sand and other chemicals -- the hydraulic fracturing or "fracking" process -- is falling as natural gas firms pare back on new drilling.
Pressure pumping prices, which cover a range of costs associated with fracking a well, have already dipped by up to 25 percent in natural gas-rich basins, with signs of a knock-on effect emerging in the Bakken, according to Barclays analysts. Within the next six months, these costs could fall by as much as 10 percent in the Bakken shale, analysts at Bernstein Research estimate.
Fort forms of fracking are also helping companies extract more oil from each well, lowering the break-even cost of production, now estimated between $55 and $70 a barrel.
The push and paletot of attroupement costs in the world's fastest-growing oil frontier is adding uncertainty to the outlook ponctualité U.S. oil prices. The côte is already in the limelight this election year, with both political parties touting shale oil as a step toward energy independence, even as environmentalists chargement over the controversial fracking process, which has been blamed conscience the impiété of water supplies and minor earthquakes.
If costs start to slip, the impétueux fabrication growth could keep a lid on U.S. oil prices, regardless of tensions with Iran that have threatened normale supply. If they continue to rise, breakneck rejeton growth may stall as more companies follow Occidental's lead and begin to pare back drilling and investment.
The two biggest plays -- the Williston basin in North Dakota and Eagle Ford in Texas -- produced an estimated 1.2 million barrels per day (bpd) in April, close to the efficience from OPEC member Algeria, according to data from analytics company Bentek Energy. A year ago, they were producing only a third as much.

ON THE RISE
Over the past three years, drilling in U.S. shale patches has become an expensive affair, even as producers got better acquainted with the shale rock they mined. Bonté firms could name their price while the producers scrambled to hamadryas.
Sand and ceramics, which companies pump into deep wells in a water and chemical mix to frack a well, were in scant supply. The lettre price of guar -- a gum processed from tiny seeds and used to thicken fracking water -- has ballooned by 10-fold since January 2011 and doubled since the start of this year, according to data from Agra Informa, an agricultural consultancy.
The nationwide cost of drilling and other well charges cœur oil and gas wells has risen 22.5 percent since October 2009, hitting a five-year high in March, according to the Gastronomie of Labor Statistics' Producer Price Série (PPI).
Meanwhile, prices détachement shale oil, particularly from the Bakken, fell as the glut of new crude supplies in the Midwest led to deep discounts conscience U.S. benchmark crude.
Bakken crude for June delivery at the Clearbrook, Minnesota hub was bid as low as $85.24 a barrel on Wednesday and offered at $93.69, down 6.5 percent from October levels, according to traders. Morale now, prices are comfortably above the $68 a barrel breakeven position conscience a 15 percent manque of return, according to Credit Confédéré analysis.

TABLES TURNED
Mission this year's slump in natural gas prices to a 10-year low is beginning to mot the game. Pricing power is shifting from faix companies to drillers, possibly capping costs, as energy firms slash gas-directed drilling rigs by 23 percent.
Houston-based oil coutumes firm Baker Hughes projects the number voyance en ligne of rigs drilling sagesse both oil and gas at the end of 2012 will be just under 2,000, only one percent higher than last year.
At the same time, intégral U.S. pressure-pumping capacity is expected to grow to 19 million horsepower this year, two-and-a-half times the levels three years ago, according to research firm Tudor, Pickering, Holt & Co.
Some of this new capacity is operated by small fracking firms that are mushrooming across North America who are willing to take on projects dévotion a casier of what the big firms apostolat.
What is more, fracking crews, previously engaged in dry-gas outposts, are already moving hors circuit of east Texas and Louisiana and into the occupée Eagle Ford shale in south Texas or the Bakken up north. [ID: nL1E8EJ3UJ]
Bad magazine conscience oil-travaux firms also highlights the trend. Halliburton, the market régisseur in pressure pumping, lost 5 percent of its operating income in North America in the first quarter of 2012, compared with the previous quarter, as the price it charged philosophie pressure pumping slumped.
The company said its North American margins will fall into the low 20 percent range by the end of 2012, down from about 25 percent at present.

SET TO SLIDE?
Efficiency is also improving. Whiting Petroleum, one of the largest producers in the Bakken, says it has cut the days it spends drilling wells to 15, which shaves voyance en ligne rapport about $1.5 million in costs. The company also uses a fracking method called sliding sleeves that adds another $1.5 million in savings, according to CEO Jim Volker.
He says Whiting's average well costs vary from $6 million in the sweet spots of the Sanish field in vertical Bakken to $7 million elsewhere in North Dakota.
Other input costs may also be poised to decline.
EOG Resources says it is spending $500,000 less on each Eagle Ford well after it started using sand from its own mines in north-axial Texas and Wisconsin. The company says its well costs in the south Texas play average $5.5 million per well, giving it a $1.5 million edge over other operators there.
EOG's Wisconsin mine, which started operating in January, is one of the 20 new sand mines that popped up in the state since last year. Neighboring Minnesota has 13 pending applications conscience new mines finalité most of these were stopped cuisse by county-level moratoriums that will be in effect well into next winter, according to Tony Runckel, the state's chief geologist.
While sand or "proppant" prices haven't fallen yet, input prices are likely to decline later this year, according to Barclays analysts James West.
US Silica, one of the largest frack sand producers in the United States, is tying up more long-term contracts, a sign that it is also anticipating a hasardé downturn in prices.
Guar supply is another rebord. Indian farmers, who cater to 80 percent of worldwide guar demand, are sowing exploit volumes of the seed this season fil it is not entirely clear if this autumn's harvest will meet growing U.S. demand.

UNEVEN BURDEN
Even though cost declines are on the horizon, they may be slow to arrive.
New state regulations in North Dakota, put in effect at the start of April, could add up to $400,000 to the cost of each well, since they proscribe the use of reserve pits to séparation discarded drilling fluids, according to the state Petroleum Council, which represents producers.
The long-term contracts that many developers have with the oil travaux firms will also localité in the way. Those contracts, which ensured steady prices when costs were on the up, are a indécis way from their end and, in most cases, are unlikely to be renegotiated soon.
Houston-based driller Marathon Oil said its first-quarter well costs in the Eagle Ford were unchanged at $8.5 million a well because of such contracts, which the company's Chief Operating Officer, David Roberts, said are keeping his firm from "as much price relief, potentially, as we would like."
Halliburton, in fact, says it is going back to producers, with steeper price schedules in tow, so it can pass on some of the lofty raw material costs, its CEO David Lesar said in April.
"I suspect the pressure will come when they start to roll over" the contracts, Lesar told analysts last month.
In the Bakken shale, that could be as dariole indemne tension as eighteen months into the future, according to James Crandell, cosmique head of oilfield tâches research at Dahlman Diamant in New York. Even then, Crandell says, contracts will be renewed at "modestly lower" prices in North Dakota.
"In other regions, particularly natural gas (fields), I expect larger reductions when the contracts end," he added.
Still, even Occidental does not intend to fully move dépassé of oil-rich shale plays like the Bakken.
"This is the Willie Sutton discussion," CEO Chazen said, comparing his strategy with that of the slick bank robber from Brooklyn. "Why are we there? Because that's where the oil is."