Some Interesting Trends in the Energy Sector
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The energy sector's earnings season for the second quarter of 2012 is winding down and I just wanted to highlight some interesting items and trends that might have been missed by many investors due to the deluge of information from all the companies reporting over the last few weeks.
Lower Costs
EQT Corporation (NYSE: EQT) is active in the Appalachian Basin and recently announced a pilot program to convert one of its drilling rigs to operate using liquefied natural gas (LNG) rather than diesel fuel. The company cited less harmful fuel emissions and a 40% reduction in fuel expense by using LNG as a substitute fuel. EQT Corporation is operating this rig in West Virginia and if the pilot program is successful, will consider converting additional drilling rigs to use LNG or natural gas.
This is important for the company because a lower cost to drill and complete wells will improve the economics of oil and gas development for EQT Corporation, which is seeing lower returns since it is still primarily a natural gas company.
Liquids – No Mas
Halcon Resources (NYSE:HK) disclosed the name and location of one of the company’s new liquids plays that it has been testing over the last few quarters in southeast Texas. The company is targeting the Midway and Navarro formations and anticipates a lease position as high as 75,000 net acres and the drilling of anywhere from four to six wells in 2012.
While an announcement of a new liquid play typically generates excitement among investors, the market is currently saturated with natural gas liquids with many companies reporting severe year over year declines in realized prices. Halcon Resources reported a realized price of $42.71 per barrel in the second quarter of 2012, down from $57.34 per barrel in the same quarter of 2011.
Halcon Resources did not disclose what percent of the estimated ultimate recovery (EUR) of wells in this new play would be crude oil as opposed to natural gas liquids or condensate, so it is difficult to assess its value.
Hoarding Oil
Continental Resources (NYSE: CLR) is one of the largest independent exploration and production companies active in the Bakken play in North Dakota and Montana. One interesting item that was buried in the company’s press release was that management decided to store 147,000 barrels of oil rather than sell it a depressed oil prices. The belief that oil prices will move higher might provide some psychological comfort to investors concerned about the future direction of oil prices.
Foreign Competition
We can now add oil services to the list of industries being impacted by foreign competition as Carbo Ceramics (NYSE: CRR) reported that an abundance of ceramic proppant from China is causing “disruptions” and putting pressure on pricing in 2012. Proppant is injected into wells along with drilling fluid during the hydraulic fracturing process and is designed to hold open the fractures once the fluid is removed so that hydrocarbons can flow to the wellbore.
Carbo Ceramics has decided to defer construction of a resin coated sand plant that was planned for Marshfield, Wisconsin. The company had already announced a delay in the construction of this facility when it reported earnings for the first quarter of 2012 back in April 2012.
Exploration and production continue to drive down costs through more efficient drilling as they look to boost returns in an environment of weakening commodity prices. They also offered up some new liquid plays to develop despite an existing oversupply.
shaleplays has no positions in the stocks mentioned above. The Motley Fool owns shares of CARBO Ceramics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
