Harvey’s Impact on Eagle Ford Shale Operators and Gulf Refiners Differs

By North American Shale magazine staff | October 09, 2017

When the U.S. Energy Information Administration released its September drilling productivity report for the major U.S. shale plays, numbers from the Eagle Ford indicated a daily production decrease of 9,000 barrels of oil per day. During the height of Hurricane Harvey in late August, the Texas Railroad Commission said up to 500,000 barrels of oil from the South Texas play had been shut-in. Although the brunt of Hurricane Harvey fell short of delivering its full force of wind and rain to the play, operators provided multiple updates to investors, service providers and midstream entities during and after Harvey. Midstream and refining segment entities did the same, providing a much different impact statement compared to operators on the effects of Harvey.

Eagle Ford Messages
Calgary-based Baytex Energy suspended drilling and completion activities but then restarted in less than a week. The operator’s restart efforts were linked to downstream assets coming back online. Sundance Energy Australia shut in roughly two-thirds of its Eagle Ford producing assets—nearly 7,500 barrels of oil per day. Once the wells were brought back online, truck takeaway capacity and availability was the limiting factor for Sundance. Lonestar Resources was able to maintain production on most of its Eagle Ford wells, but like Sundance, midstream and downstream infrastructure was the hurdle for its product to reach the market. EOG Resources, Chesapeake Energy, Marathon Oil and Sanchez Energy all halted drilling or completion operations momentarily during the storm.

Wildhorse Resource Development Corp., another E&P that was impacted by truck takeaway capacity of its products, said only oil sales and not production volumes were affected. Silverbow suffered minimal damage from the storm and said it did not expect to undergo any insurance recovery actions. Devon Energy is back to normal producing volumes across its Eagle Ford acreage, but the downtime incurred because of the storm will reduce the company’s total Eagle Ford production volumes for the third quarter by roughly 15,000 bpd. Baytex believes its Q3 production volumes will be down by 2,500 boe/d, or less than 1 percent of its yearly production guidance. ConocoPhillips did halt production for a brief multi-day period, but said its yearly production guidance for the Eagle Ford will be left unchanged.

Downstream Dilemma
Downstream companies and major refinery operations did not share the same message as the Eagle Ford operators to the North. IHS Markit, a research and analysis firm tracking the impacts of the storm through daily updates, said Harvey was the single greatest disruptive event to ever afflict the U.S. refining industry. The majority of refineries along the Gulf, including the major ports used for crude loading and offloading, were shut-down, shut-in, damaged or have had to undergo Harvey-related procedures.

Disruptions to the oil production ability of the Gulf caused U.S. Secretary of Energy Rick Perry to tap the Strategic Petroleum Reserve for refiners who were able to run but didn’t have access to crude. Through his SPR authorization, three refineries were able to acquire 5.3 million barrels of crude.

One month after the main landfall presence of Harvey, refineries along the Gulf Coast are still in the process of recovering and restarting but most have restarted. The Bureau of Safety and Environmental Enforcement said, at one point, 121,484 barrels of oil per day in the federal administered areas of the Gulf of Mexico were shut-in. More than a month after the weather event, ports, refineries and midstream infrastructure assets are still dealing with Harvey recovery efforts mainly due to flooding.

Harvey Reigns In Electricity Output
The Electric Reliability Council of Texas’ grid and several other transmission and distribution lines experienced substantial forced outages. High winds and significant flooding in South Texas and the Gulf Coast forced more than 10,000 megawatts of generating capacity out of service.

Post-Harvey Material Buying and Sourcing Trends
Data from Thomasnet.com shows the impact Harvey has had on the Houston area. The data provider has projected how materials and general services in the area will, or already have increased.

Author: North American Shale magazine staff
Article from Issue 5 of North American Shale magazine