Energy Prospectus

The usually prudent jim jubak reads caution in Baker Hughes and the OSX outlook:

<<http://jubakpicks.com/2014/01/14/in-low ... more-11605

I do think there will be more pressure on the oilfield services firms to help reduce F&D costs. It seems that all of the E&P companies I follow are making a point of saying they will be focused on reducing their drilling and completion costs this year, BUT most of them say they will be drilling more wells. I think the recent small dip in the active rig count was more weather related than any major shift in the oilfield.

As F&D costs go down, the economics on the shale plays improves.

As the big shale plays move to more pad drilling, the time from spud-to-spud is going down. More wells will be drilled with the same number of rigs. I expect the U.S. rig count to stay around 1,750 all year. We'll only see an increase in the rig count if the price of natural gas moves a lot higher, say to $6.00/mcf. I do not see a possibility of that happening until 2016. Unless we go from Global Warming to the next Ice Age. In 2016 exporting of LNG from the U.S. starts ramping up.

The good news for the big oilfield service firms is that E&P companies will be drilling longer horizontals with tighter frac spreads. This is VERY GOOD news for the frac sand companies like HCLP and EMES.

There is a lot of focus on crude oil and natural gas prices. I think this year we will see an improvement in NGL prices. There is no law against exporting NGLs and it is really picking up. I think it is going to help our Eagle Ford companies this year.

Lower F&D costs and increasing proven reserves = lower DD&A rates and increased earnings in the future.