Podcast – Oil and Gas Marketing

This week the Senate returned to work bent on taking votes on Keystone and liquefied natural gas exports, and I had the chance to talk oil and gas marketing with Lee Vendig of LDV Oil and Gas Consultants.

News Recap for the Week of November 10, 2014

Monday

  • The Senate Energy Committee announced plans to vote on a bill to expedite liquefied natural gas exports later this week.
  • China signed up for some more Russian gas.
  • The left-leaning think tank Center for American Progress put out a new report blaming the economic problems in Appalachia on market forces.
  • Cypress and Turkey are facing conflicts over energy.

Tuesday

Wednesday

  • A school in Pennsylvania is getting some gas revenues.
  • Senate Energy Committee Chairman, Democrat Mary Landrieu, forced a vote on Keystone XL, scheduled for Tuesday, November 18.   Senators also talked about moving LNG exports.

Thursday

  • A study on fracking chemicals drew a range of headlines, some positive, some turned backwards in order to sound bad.  Check out Science 2.0USA Today, and The Washington Post.
  • In a delay that might actually be positive for liquefied natural gas exports, Sen. John Hoeven (R-ND) ended consideration of his LNG bill in light of a possible deal, as reported in Energy & Environment and The Hill.

Friday

  • The Department of Energy granted final authorizations to the Freeport LNG projects, planned to be built on Quintana Island, Texas.
  • Keystone passed the house, according to Reuters.
  • Fuel Fix provided an update on recharging natural gas stockpiles.
  • Natural Gas Intelligence reported on a potential merger between Baker Hughes and Halliburton.
  • The Economist reported on problems producing from shale in Poland.

Interview with Lee Vendig of LDV Oil and Gas Consultants (begins at 14:16)

Lee grew up in an oil and gas family in Dallas.  His father is a practicing oil and gas attorney, who has been in the business for over fifty years.  Lee followed his dad’s footsteps to law school and became an oil and gas attorney himself.  As an attorney, Lee worked for companies selling oil and gas and began to question his client’s selling prices.  What he found is that most smaller producers had limited information on prices and that limited their ability to negotiate.

So Lee looked for a way to get better pricing information for producers.  He started by building a team that would collect data on oil and gas purchases.  This process is very time intensive, requiring an enormous amount of time to track and compile data.  Most smaller producers would not make the effort, finding it easier to just accept the prices they were offered.  Lee spent some time as an understudy in the marketing business, and then opened LDV Oil and Gas Consultants.

LDV says it “provides energy marketing plans designed to meet each Independent Producers needs in the increasingly volatile and complex energy markets.”  In addition to helping companies market their own oil and gas, LDV can pool the oil and gas from several producers to get a better price for each producer in the group.  The pooled production allows LDV to utilize its information and relationships, which are comparable to larger independent producers, on behalf of smaller producers.  Large independent producers typically have an in-house marketing department comparable to LDV.

LDV can also help with hedging.  As I understand it, that basically means LDV can go out into the futures market and lock in a price with a futures contract that a smaller producer might not be able to get on its own.  LDV has a few other lines of business as well.  It works with trucking companies, helping them find work in the oil fields.  The company also dabbles in renewable energy, and alternative energy  and commodities.  As an example, Lee explained some work he had done helping a company sell used tires as a commodity.

Lee said that anyone interested in his kind of job should learn the fundamentals of the industry.  In particular, he focused on the infrastructure and financing sides of the business.  He also pointed out that policy issues are very important.  He said that the oil and gas industry has many great opportunities, even in a tough economy overall.

I asked Lee what impact dropping oil prices will have on natural gas production.  First, he explained the normal seasonal pattern, where natural gas is produced and put in storage during the summer.  That stored gas is then drawn down during the winter.  This past winter was a historical drawdown, and this summer saw record injections to catch up.  November to March is the big drawdown season and natural gas producers are hoping for a cold winter that will again drain the storage.  If the storage is not drawn down enough, natural gas will have a huge surplus next year.

Lee also explained that the Marcellus and Utica shale formations have mixed up the market operations a bit.  Where the Northeast has typically drawn gas from the South and from storage during the winter, much of the gas is now coming directly from production in Pennsylvania, Ohio, and West Virginia.  Lee said that low oil prices may slow production in oil-focused fields like the Eagle Ford, Bakken, and Permian.  Many large producers, however, are set up to weather current prices.  Low oil prices will more likely hurt small producers, causing many to leave the business or be consolidated.  Relatively speaking, natural gas producers in the Marcellus and Utica will do better because their economics are fundamentally unchanged.  They have been working with low natural gas prices for some time.  Moroever, gas wells are cheaper to drill.

Be sure to check out LDV Consulting’s website, as they have a blog and a lot of other interesting information.