The boom continues. That is the story of American oil and gas in 2014, according to industry analysts.
U.S. oil and gas wells are expected to exceed the near-record levels of production set in 2013. The U.S. Energy Information Agency estimates domestic oil production will increase to 8.5 million barrels a day in 2014, or about 1 million barrels a day more than what was produced in 2013. Natural gas production is expected climb from 70.4 billion cubic feet in 2013 to 71.4 billion cubic feet in 2014.
Prices are expected to remain relatively flat in the new year. Oil is projected to decline slightly while natural gas prices are expected to tick up, according to the EIA’s estimate.
What does it all mean for Wyoming producers?
“It’s hard to see major changes for Wyoming production,” said Charles Mason, a professor of petroleum and natural gas economics at the University of Wyoming. “Barring demand dropping off a cliff, I wouldn’t think many wells would be shut in; barring some huge shift in markets, for example a major push towards CNG vehicles, I can’t see expansion of natural gas.”
Oil production in the Niobrara shale play could expand if a profitable area is found, “but that has been the ‘what if’ for at least the past few years, and there hasn’t been much to get excited about, so I think that’s pretty unlikely,” Mason said.
Many companies are moving to diversify their portfolios. Encana Corp., the largest natural gas producer in Wyoming, is shifting its focus in 2014 toward oil. The shift comes in response to low natural gas prices and the glut of supply, said Doug Hock, a company spokesman.
Encana announced plans in late 2013 to develop oil fields in New Mexico, Mississippi, Louisiana and Colorado and two fields in Canada.
“What that means for Wyoming is, it’s largely natural gas,” Hock said. “Our level of spending, our level of capital will not be as high as it has been in some years. That said, we still have natural gas assets.”
The company is proceeding with its proposal to develop 3,500 wells in the Normally Pressurized Lance formation near Pinedale and around 4,250 wells near Casper.
Encana’s move is not unique, said David Neuhauser, founder and managing director of Livermore Partners, an Illinois-based hedge fund specializing in energy. Producers are seeking to diversify their portfolios to mitigate against the risk of low prices while seeking the best return per barrel possible, he said.
“You can’t be heavily weighted one way or another at this point,” Neuhauser said.
Anadarko is one of the biggest question marks among Wyoming producers, industry analysts said. The Texas-based company more than doubled its oil production in the Cowboy State in 2013, rising from 2.5 million barrels in 2012 to 5.1 million barrels in 2013, according to Wyoming Oil and Gas Conservation Commission statistics.
But Anadarko has been hampered by questions over its future after a federal bankruptcy judge ruled the company is liable to pay between $5 billion and $14 billion. The case stems from the spinoff of a paint-making firm, Tronox Inc., which went broke after Anadarko purchased its parent company, Kerr-McGee. Anadarko is appealing the ruling.
Industry analysts say the company should have resources to assume the liability. The company posted an operating income of $3.1 billion for the first nine months of 2013 and has assets totaling $55 billion, according to filings with the U.S. Securities Exchange Commission.
The lawsuit makes Anadarko prime for a take-over bid, though, analysts say.
“They have a tremendous industry of assets,” said Ed Hirs, the managing director of small Texas oil and gas firm and a professor of energy economics at the University of Houston. “Now that the downside has been exposed, if one can penetrate the Anadarko books they would be a potential acquisition for a well-managed company.”
Amy Myers Jaffe, executive director for Energy and Sustainability at the University of California Davis, pointed to Texaco and Pennzoil as examples of companies bought following major lawsuits. A similar fate could await Anadarko, she said, noting the company agreed to pay $4 billion to British Petroleum for a 2010 oil spill in the Gulf of Mexico. Together, both suits make Anadarko more vulnerable to a take-over.
The impact of an Anadarko sale on Wyoming would largely depend on the buyer, she said.
“If Anadarko is taken over by Shell or a company that is already active in Wyoming, I wouldn’t expect much change at all,” Jaffe said. “If it was a company not already active in Wyoming, it would almost be like Wyoming was starting over.”
The new company would have to decide whether to keep Anadarko’s assets in the state, she said.
Anadarko declined comment on what a company spokesman called market speculation.
Neuhauser, the hedge fund manager, agreed the odds of Anadarko getting sold have increased. But the prospects of a take-over are still relatively slim. He estimated the likelihood of a sale around 20 to 30 percent.
Still, the number of mergers and acquisitions in energy should rise in 2014 and 2015, Neuhauser said. Larger producers like Exxon Mobile and Shell are seeing old fields come off line while second-tier producers like Anadarko boast valuable assets.
“Today it is all about being a leaner, more efficient operator, returning more to shareholders and seeing higher rates of return,” Neuhauser said. “The short answer is that Anadarko would be an attractive asset to a suitor; the key issue is the timing. If the company loses the appeal, that would really put them out.”