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E&P Companies Using Variety Of Strategies To Battle Oil, Gas Price Downturn

Exploration-and-production companies, buffeted by low oil and gas commodity prices brought on by robust production from shale plays, are using a variety of strategies to survive the current industry downturn, speakers at an oil and gas conference said in San Francisco.

Representatives of upstream companies presenting at the Independent Petroleum Association of American Oil and Gas Investment Symposium said their firms are depending on a combination of belt-tightening efforts, hedging strategies and technology to deal with the economic doldrums.

J. Russell Porter, president and CEO of Gastar Exploration, said his company is well-positioned to continue to thrive because it operations are diversified between two significant core assets — the Marcellus/Utica natural gas-centric play of Appalachia and the oilier play in the Midcontinent.

Gastar’s acreage position in the Appalachian Basin is about 60,000 net acres in West Virginia and to a lesser extent Pennsylvania.

Although the bulk of the acreage is in the liquids-rich portion of the basin, about 11,000 net acres is prospective for production from the Marcellus Shale, a dry natural gas play, Porter said.

He said that given current supply-and-demand trends he doesn’t expect a rapid turnaround in prices for gas being produced in the Appalachian Basin.

“There’s so much gas it’s probably going to keep a lid on gas prices,” he said.

But he said that although Henry Hub prices might not be headed upward over the near term, he foresees the basis differential between those prices and the prices fetched by gas producers in the Appalachian Basin as being likely to improve from the producer’s point of view.


And although producers in recent years have sought to focus their attention on liquids-rich gas plays rather than on dry gas targets, in more recent months the dramatic ramp-up of production has resulted in a glut of NGLs that has served to drive down prices for NGLs.

“Dry gas economics are actually better than wet gas economics,” Porter said.

He said the company uses hedging strategies to protect against the downside risk of depressed oil and gas prices.

“We’re big believers in hedging,” he said.

He also noted that he sees “more upside than downside” on gas prices.

In addition to its Appalachian acres, Gastar holds a significant asset position in the Midcontinent, which is prospective for both crude oil and gas production, he said.

“We’re in a very good position in the Midcontinent, where most of the capital goes to drilling,” he said.

As of June 30, 2014, the company’s consolidated position in the Midcontinent region consisted of about 126,000 net acres, including 84,200 net acres in the Midcontinent Stack Play, which contains more than 500 net Hunton Limestone future locations and a similar number of Woodford Shale and Meramec Shale locations. Gastar operates about 70% of its Midcontinent net acreage.

Porter predicted that the company would see continued growth in its Midcontinent gas production, particularly in the Woodford play, which he said is “gassier than Meramec.”

He added that Gastar, like its competitors in the upstream space, also strives to keep its cost structure down in the current low commodity price environment.


Although robust oil and gas production has driven energy commodity prices down to a level where many E&P companies are struggling to survive, another company presenting at the conference is relying on a proprietary technology designed to increase crude oil output as the key to its economic growth.

Houston-based Glori Energy uses its Activated Environment for Recovery of Oil system in waterflooded oil fields to activate and sustain indigenous reservoir microbial life, which it said loosens and frees trapped oil.

“Two-thirds of all oil that has ever been discovered remains trapped in the rock,” said Victor Perez, Glori’s chief financial officer.

He said that by employing AERO technology operators can increase the recovery of crude from mature oilfields by releasing between 9% and 12% of the field’s original crude oil resource for production.

Glori Energy makes its money through the licensing of the technology to third-party producers and by buying mature oilfields from owners that no longer consider them to be core assets and lengthening their producing life, he said

Published on:
October 7, 2015
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