MARKET WATCH: Accidents plague industry, influence prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 8 -- The price of the front-month crude contract continued to decline June 7 in the New York market as the euro plumbed a new 4-year low against the dollar, but the near-term natural gas position continued to climb with the eruption of a Texas intrastate gas line west of Cleburne.

“Sometimes the energy industry shoots itself in the foot. And sometimes it goes way beyond that and allows an offshore oil spill, an onshore blowout, and a pipeline explosion,” said analysts in the Houston office of Raymond James & Associates Inc.

One construction worker was killed and 8 more were injured when the 36-in. Enterprise Products Partners LP pipeline erupted in flame before 3 p.m. CST June 7. The Texas Department of Public Safety reported the workers were drilling holes for overhead transmission lines and struck the underground pipeline.

Meanwhile, EOG Resources Inc., Houston, was ordered by the Pennsylvania Department of Environmental Protection to suspend drilling for 7 days and fracing for up to 14 days, with no completions allowed for 30 days in its Marcellus operations after its Punxsutawney Hunt Club No. 36H well blew out June 3 in Clearfield County, Pa. EOG officials said they are cooperating with the state agency, which is reviewing the company’s operations. No one was injured in the mishap, and EOG said any environmental damage is expected to be minimal. No fracing fluid was released into any streams or water sources.

EOG had a four-rig drilling program in the Pennsylvania Marcellus with current net production of 11 MMcfd of gas equivalent, less than 1% of the company's total production.

But with the administration, Congress and the public already seething over the Macondo blowout in the Gulf of Mexico, many industry observers fear additional accidents may result in more regulation onshore as well as offshore.

“This is what environmentalists have been waiting for, signaling a potentially long summer for energy investors. Near term this will [financially] impact some companies active in the Marcellus via higher levels of regulation,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “It appears that plenty of long-term investors are waiting for the dust to settle and are willing to miss the first 10-15% of upside move in the stocks as we await new regulations and can determine the true costs that ensue.”

Raymond James analysts said, “To see how the market has already priced in…increased industry regulation, just take a look at the December 2018 crude contract, which is now trading at a $21/bbl premium to the current month vs. an $11/bbl premium before the Macondo blowout. In the gulf, [President Barak] Obama's deepwater moratorium has taken the rig count down to 23, its lowest point since August 1993 (when oil was just $16/bbl).”

Energy prices
The July contract for benchmark US sweet, light crudes dropped 7¢ to $71.44/bbl June 7 on the New York Mercantile Exchange. The August contract slipped 3¢ to $72.77/bbl. Subsequent months registered gains and remained in contango. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 7¢ to $71.44/bbl in line with the front-month crude futures contract. Heating oil for July delivery regained 1.06¢ to $1.97/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month dipped 0.04¢ to $1.99/gal.

The July natural gas contract continued to escalate, up 11.9¢ to $4.92/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 5.5¢ to $4.74/MMbtu.

In London, the July IPE contract for North Sea Brent crude inched up 3¢ to $72.12/bbl. Gas oil for June dropped $5.50 to $621/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes fell $2.45 to $69.64/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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