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Expo/Industry events for the next few months

DUG East
June 21 – 23, 2016
David L. Lawrence Convention Center
Pittsburgh, PA

http://www.dugeast.com/

Latest facts and a rumor from the Marcellus and Utica Shale

  • Finally.  Shell Says “Yes” Shell announced that their Board approved the FID - final investment decision to build a petrochemical complex in Beaver County Pennsylvania. That is good news for the region, not only will it bring some 6,000 construction workers but it will employ 600 to run the facility. The complex will attract numerous companies and jobs to the area to supply Shell  on an ongoing basis products and services needed to run the plant. Those will range from simple services such as janitorial and products such as office suppliers. It will also include highly technical services such as calibrating high technology equipment in the plant and supplying spares when needed. Indirectly the complex will infuse the local communities with increased demand for housing, banking, legal, accounting, retail and restaurants as the workers spend their pay locally. These other jobs have been estimated at more than 10,000. Unlike most business sectors, Shell can't pick up and move - they are here for the long term.

    Originally announced in 2012, the plant is expected to start up early in the next decade. The long gap between original announcement and the FID (the point of no return - they will build the complex) caused some to question Shell's commitment. During this time Shell has canceled numerous other multi-billion dollar projects globally. The current low oil and natural gas prices have reduced their cash flow and thus ability to invest forcing them to prioritize. Shell followed a fiscally responsible path and pushed the decision off to the last possible moment.  Shell also bucked the multi-decades long trend of locating petrochemical facilities in the US Gulf Coast. They could have lowered their investment capital by locating this complex at their Deer Park Texas or Geismar Louisiana sites. Despite all these obstacles the decision to invest in Beaver County was made.

    Tom Gellrich is the founder of Topline Analytics, focused on helping organizations leverage the profound downstream changes of the shale gas revolution. He can be reached at Tom.Gellrich@TopLineAnalytics.com   267.205.1263
     
  • Opening up the Appalachian Basin to additional cracker and downstream plants.  This investment increases the chances for additional ethylene crackers in the region. It validates the two primary reasons for locating in the region. Due to the phenomenal rise of shale gas - this region has ample ethane supplies at cost among the lowest in the world.  The region is within 500 miles of half the North American demand for the end product the plastic polyethylene. With a Gulf Coast facility Shell would have to pay to have ethane shipped down and the polyethylene back up to the customers. With an Appalachian basin location they avoid those costs. Closer proximity allows them to respond faster to customer requests and carry less inventory.

    This investment also bodes well for additional investment in the region. Shell will prove the concept, the investment community will follow the decision and see reduced risk for others to invest. Shell will also create an ecosystem of the highly skilled suppliers of products and services needed to run the modern high technology petrochemical complex. Shell will work with local institutions of higher education to create a pool of qualified workers. The community will see the benefits of the Shell complex and become more accepting of additional investments. The Shell investment greatly lowers the risk and barriers for additional ethylene crackers in the region.

    Shell would even welcome additional ethylene crackers in the region to act as backup for their own cracker. The Shell complex does not just produce ethylene it converts the ethylene to polyethylene plastic, and in previous announcements Shell discussed production of other ethylene derivatives such as ethylene glycol an antifreeze. From time to time Shell will need to stop ethylene production for routine maintenance and inspections. During that time period the polyethylene and ethylene plant could keep producing if they had a source of ethylene supply - which could come from a competing complex nearby. This is routinely how the industry maintains high operation rates necessary to maintain profitability from their multi-billion dollar assets.

    Tom Gellrich is the founder of Topline Analytics, focused on helping organizations leverage the profound downstream changes of the shale gas revolution. He can be reached at Tom.Gellrich@TopLineAnalytics.com   267.205.1263
     
  • Growing global middle class drives need for more cracker plants.  Where will all the product from the not only the Shell cracker but also the half dozen new crackers on the Gulf Coast go? It will feed the growing global demand for plastics products. Rapidly growing developing countries, particularly in Asia are creating a large bubble of middle class consumers. As the consuming middle class develops, so does the demand for plastics in everyday items from toothbrushes, to pens, to cars, to computer keyboards.  At the APIC conference of May 2016 IHS estimated that the world will need between 5 to 6 world scale ethylene cracker plants per year from 2020 to 2030. With ethane prices among the lowest cost in the world, and ample ethane supply, the region is well suited to compete for these new plants.

    Tom Gellrich is the founder of Topline Analytics, focused on helping organizations leverage the profound downstream changes of the shale gas revolution. He can be reached at Tom.Gellrich@TopLineAnalytics.com   267.205.1263
     
  • Downstream derivatives and related products offer potential for additional investments.  The Shell investment could also attract other consumers of ethylene making dozens of different ethylene based derivatives such as vinyl acetate, which Shell does not produce. From their other petrochemical complexes Shell supplies many derivative producers. It is logical that the same pattern be repeated in the Appalachian Basin. This will result a greater market for new ethylene cracker complexes to serve, creating a virtuous circle.

    We shouldn't forget the numerous existing chemical complexes in the Appalachian basin which would enjoy  access to ethylene and ethylene derivatives. The basin’s chemical history is long and featured the first ethylene cracker in North America. While that plant is long since mothballed, ironically due to lack of low cost raw material, many downstream complexes remain an import ethylene and derivatives from the Gulf Coast. Local production would reduce costs tremendously. To get ethylene and other products to them a local storage and transportation hub will need to be created just like along the Gulf Coast. This infrastructure is in itself a multi-billion dollar investment.

    Ethylene is the number one building block but there are other building blocks such as propylene which could logically follow for the exact same reasons. Low cost raw material, ample supply, local customers and growing global market for export.

    Shell is just the beginning of the Appalachian basin chemical renaissance, which will eventually eclipse the economic size and impact of the shale gas drilling business. These downstream investments will in turn feed new businesses. The golden era for the region is just ahead.

    Tom Gellrich is the founder of Topline Analytics, focused on helping organizations leverage the profound downstream changes of the shale gas revolution. He can be reached at Tom.Gellrich@TopLineAnalytics.com   267.205.1263
     
  • SWN Sells Marcellus Acreage to Antero.  Southwestern Energy said it’s selling roughly 55,000 Marcellus Shale play acres in West Virginia to Antero Resources for $450 million, Kallanish Energy reports.

    The cash proceeds from the transaction are expected to be used to reduce the principal balance of the company’s $750 million term loan due in November 2018.

    The properties are located in Doddridge, Harrison, Marion, Monongalia, Pleasants, Ritchie, Tyler and Wetzel counties and are currently producing roughly 14 million cubic feet-equivalent per day (MMcfe/d), primarily from non-operated wells.

    Approximately 75% of the 55,000 net acres contains dry Utica Shale rights, Antero said.

    Proved reserves on the acreage were 11 billion cubic feet-equivalent (Bcfe) as of Dec. 31. Antero has no current plans to drill on the acquired acreage before 2023.

    “This transaction is one step on delivering on the commitment we made to strengthen our balance sheet in 2016,” said Bill Way, CEO of Southwestern.

    Southwestern has a 30-day tag along option to sell the remaining 19% average working interest in the acquired properties to Antero, or an additional 13,000 acres, under the same terms.

    The tag along acreage includes 1 trillion cubic feet-equivalent unaudited Marcellus proved/probability/possible reserves, 400 Bcf of dry Utica resource and 3 MMcfe/d of net production.

    If the tag along option is exercised by Southwestern, the adjusted acquisition price is estimated at $560 million.

    “This strategic acreage acquisition in the southwestern core of the Marcellus Shale play further enhances our leading position as a pure-play Appalachian operator,” said Paul Rady, Antero CEO. “The transaction creates a new platform for development and consolidation in Wetzel County, with attractive rich and dry gas Marcellus locations, as well as stacked pay potential for the dry Utica.”

    Substantially all of the 55,000 acres will be dedicated to Antero Midstream for gas gathering, compression, processing, and water services.

    The transaction is expected to close in the third quarter.
     
  • Atlantic Sunrise Pipeline Gets More Time in PA.  The Pennsylvania Department of Environmental Protection (PADEP) has extended by 60 days the comment period on water obstruction and encroachment permits related to the proposed Atlantic Sunrise natural gas pipeline.

    The comment period now will close on Aug. 1, Kallanish Energy reports.

    “A project of this size requires thoughtful public input,” said Patrick McDonnell, DEP acting secretary. “Based upon public interest in this project, DEP decided that a 30-day comment period on the water obstruction and encroachment permits for the Atlantic Sunrise pipeline was insufficient … .”

    The proposed project will involve approximately 195 miles of pipeline flowing 1.7 billion cubic feet per day (Bcf/d) and would cross 10 Pennsylvania counties, including Clinton, Columbia, Lancaster, Lebanon, Luzerne, Lycoming, Northumberland, Schuylkill, Susquehanna, and Wyoming, before crossing into Maryland.

    Atlantic Sunrise is part of Williams’ 10,200-mile Transco Pipeline, which runs from South Texas, to New York City.
     
  • U.S. Oil Inventory Declines.  U.S. commercial crude oil inventories fell 3.2 million barrels (MMBbls) for the week ended June 3, from one week earlier, according to the Energy Information Administration’s (EIA’s) Petroleum Status Report.

    Total inventory at June 3 was 532.5 MMBbls, with inventories at historically high levels for late spring, Kallanish Energy understands.

    U.S. crude refinery inputs during the week ended June 3 averaged 16.4 million barrels per day (MMBPD), a jump of 211,000 BPD from the previous week’s average. Refineries operated at 90.9% of their operable capacity.\

    Crude oil imports in the U.S. averaged 7.7 MMBPD, down 134,000 BPD from the previous week’s average.

    Over the last four weeks, crude imports averaged 7.6 MMBPD, up 9.5% from the same four-week period one year ago.
     
  • Shale Insight Expanding in 2016.  The Marcellus Shale Coalition is teaming with advocacy groups from Ohio and West Virginia to host its annual gas industry conference this year.

    The sixth installment of Shale Insight, scheduled for Sept. 21-22 in Pittsburgh, will be a joint production with the West Virginia Oil and Natural Gas Association and the Ohio Oil and Gas Association.

    Shale gas producers and industry suppliers have struggled with low prices and falling profits for the past year, prompting a huge slowdown in drilling and layoffs across the sector. Officials including the governors of Pennsylvania, Ohio and West Virginia have called for more cross-state cooperation to boost demand and pipeline building that could ease a regional gas glut that is keeping prices low.
     
  • EnLink Expanding in the Permian.  A subsidiary of EnLink Midstream Partners and EnLink Midstream will construct a new crude oil gathering system, called the Greater Chickadee crude oil gathering project ("Greater Chickadee"), in Upton and Midland counties in the Permian Basin. The Partnership will invest approximately $70 million to $80 million to build Greater Chickadee, which will include over 150 miles of high- and low-pressure pipelines that will transport crude oil volumes to several major market outlets and other key hub centers in the Midland, Texas, area. The project also includes the construction of multiple central tank batteries and pump, truck injection, and storage stations to maximize shipping and delivery options for EnLink's producer customers. The initial phase of Greater Chickadee will be operational in the second half of this year with full service expected early next year.

    "The Greater Chickadee project is a perfect example of EnLink's commitment to execute in our core growth areas and will be a valuable complement to our crude oil business," said Barry E. Davis, President and Chief Executive Officer of EnLink Midstream. "We are doing exactly what we said we would do when we made the acquisition of LPC Crude Oil Marketing – using the LPC platform to expand and grow our crude service offerings in the Permian. Greater Chickadee is the next step in creating a regional gathering system to capture additional value through an expanded platform and improved asset integration."
     
  • Acting DEP Secretary Balancing Issues.  Any secretary of Pennsylvania’s Department of Environmental Protection needs to combine technical and political skills to ensure air and water quality are being defended while navigating the often-conflicting agendas of the environmental and industrial communities.

    Acting Secretary Patrick McDonnell, a 19-year veteran of the department, took on what observers say is one of the state’s most challenging cabinet positions when he was named to replace John Quigley, who resigned on May 20 after only 16 months in office.

    Quigley left following controversy over an angry email he sent to some environmental groups in April, which accused them of failing to exert a strong influence in Harrisburg. He sent it one day after lawmakers rejected new oil and gas regulations he had championed.

    If Quigley, a former advocate with the environmental group PennFuture, seemed too close to the green community, observers expect his successor to chart a smoother course through the turbulent waters of Pennsylvania’s energy politics.

    Rob Altenburg, director of the PennFuture Energy Center, and a former colleague of McDonnell’s at the DEP, said the new acting secretary has long experience of technical issues ranging from fracking to pipelines and carbon emissions, as well as of senior administrative roles such as budgeting, and is likely to take a less adversarial position than Quigley did.

    “Secretary Quigley would probably be more predisposed to be very vocal on the issues,” says Altenburg. “He came from a background where, in addition to politics, he did quite a bit of advocacy whereas Patrick McDonnell is coming from a background of more government administration, so he will probably take a different approach.”

    It remains to be seen whether Governor Tom Wolf formally nominates McDonnell to be the permanent secretary of the DEP.
     
  • Bakken Pipeline Approved.  The Iowa Utilities Board has granted pipeline builder Dakota Access permission to begin construction on its Bakken play line, Kallanish, sister publication to Kallanish Energy, reports.

    The board restricted Dakota to construction in areas where all applicable permitting has been completed. Several legs of the pipeline are still undergoing regulatory review.

    Construction of the planned 1,168-mile, 30-inch line is ongoing in North Dakota, South Dakota and Illinois. The line will ultimately transfer hydrocarbons from North Dakota’s Bakken play to Patoka, Illinois.

    “Dakota Access may begin construction in areas where it has all required permits, authorizations, approvals, and easements, where it has provided all required notices, and where it has complied with all other legal requirements,” the board wrote in its decision.

    The board was expected to rule on Dakota’s right to begin construction last week, but tabled the decision while it awaited further information.
     
  • India #3 Oil Consumer in World.  India has passed Japan as the world’s third largest oil consumer, after the U.S. and China, according to Supermajor BP’s Statistical Review of World Energy 2016.

    India, Asia’s second biggest energy consumer since 2008, overtook Japan on the back of an 8.1% year-over-year increase in daily consumption, to 4.159 million barrels (MMBPD), data released Wednesday by BP shows.
     
  • Oil Disruptions Driving Prices Up.  Unplanned global oil supply disruptions averaged more than 3.6 million barrels per day (MMBPD) in May — the highest monthly level recorded since the Energy Information Administration began tracking global disruptions in January 2011.

    From April to May, disruptions grew by 0.8 MMBPD as increased outages, largely in Canada, Nigeria, Iraq, and Libya, more than offset reduced outages in Kuwait, Brazil, and Ghana, Kallanish Energy learns.

    Along with other factors, such as rising oil demand and falling U.S. crude oil production, the rise in disruptions contributed to a month-over-month $5 per barrel increase in Brent crude oil spot prices in May.

    In Canada, the evacuation of oil workers because of wildfires around Fort McMurray, Alberta, reduced Canada’s oil sands production and led to an average 0.8 MMBPD supply disruption in May, with a daily disruption peak of more than 1.1 MMBPD. In late May, workers began returning to the area, and production is gradually restarting at a number of projects.

    In Nigeria, an escalation in militant attacks on oil and natural gas infrastructure led to a substantial increase in supply disruptions in May, which averaged 0.8 MMBPD, almost 0.3 MMBPD higher than in April.

    Nigeria’s crude oil production fell to an average of 1.4 MMBPD in May, its lowest monthly level since the late 1980s. The infrastructure attacks are occurring in response to President Buhari’s restructuring and planned phase-out of the amnesty program, discontinued pipeline protection contracts to former militants, and the increased military presence in the Niger Delta.

    For the first five months of 2016, Nigeria’s supply disruptions averaged 0.5 MMBPD, 0.2 MMBPD more than in 2015. EIA expects Nigeria’s disruptions to remain relatively high through 2017.

    In southern Iraq, power outages and inclement weather in the Basra Gulf contributed to a 50,000 BPD increase to Iraq’s supply disruption. In Libya, exports from Marsa al-Hariga, currently Libya’s largest operating oil terminal, were temporarily halted from late-April to mid-May, increasing Libya’s disruption by an average of 50,000 BPD in May.
     
  • Seventy Seven Files for Bankruptcy.  Seventy Seven Energy (a/k/a Chesapeake Oilfield Operating) and 10 affiliated debtors this week filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, Kallanish Energy finds.

    The Oklahoma City, Oklahoma-based midstreamer, spun-off from Chesapeake Energy in 2014, concurrently filed a prepackaged reorganization plan, which provides for a substantial deleveraging, as roughly $1.1 billion of Seventy Seven’s outstanding debt will be converted to equity.

    The Chapter 11 filing follows solicitation of lenders representing the company’s incremental term supplement (Tranche A) loan, and its $400 million term loan credit agreement.

    Also agreeing to the restructuring were Bank of New York Mellon and Wells Fargo, which held $650 million of Seventy Seven’s 6.625% senior unsecured notes due in 2019, and 6.50% senior unsecured notes due in 2022, respectively.

    The solicitation resulted in overwhelming approval of the company’s plan, a key component of which is that all trade creditors, suppliers and contractors will be paid in the ordinary course of business.

    In its filing (reviewed by Kallanish Energy), Seventy Seven listed total assets of $1.78 billion, and total debts of $1.73 billion.
     
  • IMG Moving NatGas in NE PA.  Ron Kiecana knew several years ago that companies drilling in the Marcellus shale would need more customers in the power sector to use their gas, especially in Pennsylvania where pipelines and export options were limited.

    At the same time, he saw a move away from massive power plants to more localized “distributed energy” resources built around renewables and other smaller sources of electricity.

    The company he leads, IMG Midstream, aims to address both needs by building and operating 20-megawatt, gas-fired plants — each designed to power about 13,000 homes — in the heart of the Marcellus.

    “These small-scale projects are located close to the source of where natural gas is being produced,” said Kiecana, CEO of the company that recently moved its headquarters to the North Shore from Wexford.

    Less than four years after its founding, IMG in October brought online its first power plant, called Roundtop Energy, in Auburn, Susquehanna County. Its second plant, Beaver Dam in Bradford County, went into full operation last week, and two more will come online in that county this year.

    The company, which is backed by New York private equity firm Bregal Energy, has a goal of doubling its size by the end of 2017 and having 500 megawatts — 25 plants — installed and running in five years. It has 20 employees at three locations.

    Kiecana declined to say how many plants privately held IMG must build to become profitable through sales of electricity to the grid.

    “We're very lean and very nimble. I think it's very important for our business model to stay that way,” said Kiecana, who has 24 years in the energy business, most recently working in the renewables space.

    IMG's facilities are coming online at a time when gas-fired plants are increasingly seen as a cheaper and more environmentally friendly alternative to coal-fired plants, which are closing because of tighter pollution rules and competition. Natural gas prices this spring hit 17-year lows.

    The smaller footprint of IMG's power plants and the company's approach to working with communities help it avoid the opposition and not-in-my-backyard backlash some developers of larger plants have recently faced.

    Taking up a 70-by-110-foot space (a little larger than a professional basketball court) on about 5 acres of land, and producing little noise or emissions, each plant has “a low environmental impact, which is important to a lot of people when you're doing community outreach and they have concerns,” said Joe Broadwater, IMG's vice president for operations and asset management.

    Officials in Auburn had no complaints from neighbors or about their dealings with IMG, township Supervisor Dan Trivett said.

    “They were really good at communicating with us. They invited us down and we toured the whole plant,” he said.

    IMG officials know they will build in neighboring communities, so a personal touch is important, Kiecana said. Part of being nimble means traveling a lot to see the operations in Northeast Pennsylvania and the people who live nearby, he said.

    “There was a lot of face-to face, a lot of community meetings explaining what we do,” spokeswoman Kristi Gittins. “It's easier now that we have one built. You can see it, you can touch it. There's more of a comfort level.”

    The power plants themselves are nimble, too, able to power up in six minutes, which helps them operate in the growing niche of distributed energy.

    “They can come on and off very quickly, as well as respond to load change requests” from the grid, Broadwater said.

    Energy planners are looking more to smaller, localized sources of electricity as more reliable ways to power a system of mini grids. That opens the door to more solar and wind power, but those sources need baseload supply from gas for when the sun sets and the air is still.

    “There continues to be a market for these types of resources,” said Greg Reed, director of the University of Pittsburgh's Center for Energy and a professor of electrical engineering. Plants like those built by IMG complement and support renewables, said Reed, who is involved in several university and utility projects aimed at expanding micro-grid systems.

    “The market is growing for sure,” he said.

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Rig Count

  • Baker Hughes Rig Count the week of June 3, 2016
     
  • PA
    • Marcellus 13 down 1
  • Ohio
    • Utica 12 up 1
  • WV
    • Marcellus 10 unchanged
  • TX
    • Eagle Ford –30 up 1
  • TX & NM
    • Permian Basin – 142 unchanged
  • ND
    • Williston – 24 up 2
  • CO
    • Niobrara – 12 down 1
       
  • TOTAL U.S. Land Rig Count 388 up 6

PA Permits for June 2, to June 9, 2016

      County             Township           E&P Companies

1.    McKean           Sergeant              Seneca
2.    Tioga               Liberty                  Shell
3.    Tioga               Liberty                  Shell
4.    Tioga               Liberty                  Shell
5.    Tioga               Richmond              Shell
6.    Tioga               Richmond              Shell
7.    Tioga               Richmond              Shell
8.    Tioga               Richmond              Shell
9.    Washington    . North Strabene       Range
10.    Washington    North Strabene       Range
11.    Washington    North Strabene       Range
12.    Washington    North Strabene       Range
13.    Washington    North Strabene       Range
14.    Washington    North Strabene       Range
15.    Washington    North Strabene       Range
16.    Washington    North Strabene       Range

OH Permits for weeks ending June 4, 2016

       County      Township    E&P Companies

1.    Belmont     Colerain        Ascent
2.    Jefferson    Ross            Chesapeake
3.    Jefferson    Knox            Chesapeake
4.    Monroe      Salem           Statoil
5.    Monroe      Salem           Statoil

Joe Barone jbarone@shaledirectories.com 610.764.1232
Vera Anderson vera@shaledirectories.com 570.337.7149

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