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Expo/Industry events for the next few months

Upstream PA 2016
April 19, 2016
Penn Stater Inn
State College, PA

Ohio Valley Regional Oil & Gas Expo
April 26-27, 2016
Belmont County Carnes Center
St. Clairsville, OH

Latest facts and a rumor from the Marcellus and Utica Shale

  • The Bottom May Be In.  This comment has been said number times since October 2014 when the decline started.  I’m encouraged by the fact that oil has closed above $41 for two days in a row.

    Here are pieces of financial news that have come out this week which point to the fact oil may be bottoming:
    • Chesapeake’s banking syndicate reaffirmed the independent producer’s senior secured revolving credit facility’s $4 billion borrowing base through June 2017.  This is a very encouraging sign for Chesapeake which has time for prices to recover and pipelines to be built and opened.
    • A commentator on CNBC commented that the breakeven price for oil in the Permian is $35.  If the price of oil can find a floor at $40, the companies in the Permian Play should have brighter future.
    • Jamie Dimon, Chairman of JPMorgan, on his quarterly report conference call stated that JPMorgan’s loans to energy companies will eventually be paid.  He further stated that the bank does not want to walk away from these companies.  Long term, the energy companies are good clients for JPMorgan.
    • OPEC, Russia, Mexico, Venezuela and other oil producing companies are meeting Sunday to create an agreement on freezing oil output.  While current production still exceeds demand, this freeze agreement could be a first step in bringing order to the industry.

The picture for NatGas is still uncertain.  The price has been hovering between $1.90  and $2.05 the last couple of weeks.  NatGas production is decreasing which may help pricing, but pipeline completions which were supposed to be completed this year are being pushed back to next year.

At our Utica Upstream Seminar last week, Maria Cortez from Wood Mackenzie, commented that they think NatGas will be around $3.00 by the fourth quarter in 2016.  This is great news for drillers in the Marcellus because their breakeven is $2.  The drillers in the Utica may increase drilling because their breakeven point is $3.

  • NatGas Power Plant Coming to NE Ohio.  Developers of a very large gas-fired power plant have finalized an $890 million financing package and are expected to begin construction immediately.

    The Lordstown Energy Center will generate 949-megawatts of electricity --  more than the Davis-Besse nuclear power plant near Toledo -- and enough power to supply 750,000 to 800,000 homes.

    The electricity will flow into high-voltage transmission lines operated by the American Transmission System, a FirstEnergy company, and be available both locally and regionally in wholesale markets overseen by grid manager PJM Interconnection.

    The project is expected to take a little more than two years to complete and involve as many as 450 to 500 union workers. Once built, though, the power plant will employ only 19. The power plant is one of seven planned or being built in Ohio.

    The plant will burn natural gas produced from shale formations in Ohio and Pennsylvania.  Dominion East Ohio will build a 24-inch pipeline more than five miles from one of its main transmission pipelines.

    The plant is a combined cycle gas turbine. This means the waste heat from the combustion in the turbine is used to make steam to spin an integrated steam turbine. A combined cycle turbine can produce as much as 50 percent more power than a traditional gas combustion turbine. The technology is far more efficient than traditional coal-fired power plants and produces about half the carbon dioxide.

    Developers Macquarie Infrastructure Partners III, a $3 billion North American infrastructure fund created by the Australia-based investment fund Macquarie Group, and Siemens Financial Services are providing $400 million toward the project.

    The rest of the financing will come from a group of international and U.S. banks, including KeyBank of Cleveland, according to the Youngstown/Warren Regional Chamber.

    Clean Energy Future-Lordstown, LLC (the plant owners) and Siemens Energy of Orlando, Fla. will build the facility, which will use Siemens' U.S.-made power plant equipment.

    The regional chamber estimated the power plant will "have a positive impact on Lordstown almost equivalent" to that of the GM Lordstown assembly complex.

    The economic impact on the region over plant's 40-year life will be more than $30 billion, the chamber said.

    Arno Hill, mayor of Lordstown, called the project a "dream come true."

    He said the project was first proposed two years ago but the village planning commission rejected it 4-to-1, overriding his one vote.

    "I told them I will find you another site. It took this long. We had public hearings and nobody spoke against it," he said. The plant will be built in the Lordstown Industrial Park.

    The village gave the developers full property tax abatement for its first 15 years of operation, said Hill. But the company will pay the local schools a total of $20.25 million, starting with a $500,000 payment on May 1, Hill said. About 600 students attend Lordstown schools.
  • The Halliburton – Baker Hughes May Be Saved.  CNBC has reported that the Carlyle Group is interested in buying $7 billion worth of businesses from both companies.  These purchases may save the deal.  We’ll have to wait and see.
  • Chesapeake Secures Financial Support Through June 2017.  Chesapeake Energy said Monday its banking syndicate reaffirmed the independent producer’s senior secured revolving credit facility’s $4 billion borrowing base, Kallanish Energy learns.

    To maintain the base, Chesapeake agreed to pledge additional assets as collateral, while the next scheduled borrowing base redetermination review was postponed until June 2017.

    The amendment includes a collateral value coverage test, which may limit Chesapeake's borrowing capacity if its collateral coverage ratio falls below 1.25 times, tested as of March 31, 2017.

    The amendment provides temporary covenant relief, with the facility's senior secured leverage ratio suspended until September 2017, then reverting to 3.5 times through December 2017, and decreasing to 3 times thereafter.

    In addition, the amendment reduces the interest coverage ratio to 0.65 time from 1.1 times through March 2017, after which it will increase to 0.70 times through June 2017, then reverting to 1.2 times in September 2017 and to 1.25 times thereafter.

    (The interest coverage ratio (ICR) is a measure of a company's ability to meet its interest payments. The interest coverage ratio is equal to earnings before interest and taxes (EBIT) for a time period, often one year, divided by interest expenses for the same time period.)

    During the period in which the existing maintenance covenants are suspended, Chesapeake has agreed to maintain a minimum liquidity amount of $500 million at all times, increasing to $750 million if its collateral coverage ratio falls below 1.1 times, tested as of Dec. 31, 2016.

    The amendment also gives Chesapeake the ability to incur up to $2.5 billion of first-lien indebtedness secured on the same basis with existing obligations under the credit agreement.
  • Chief Closes Pittsburgh Office.  Chief Oil & Gas, a sizable and active driller in the Pennsylvania Marcellus Shale, has just closed its Appalachian regional office in Wexford, PA (near Pittsburgh).  (RUMOR)

    Rex Signs Deal with INEOS to Send Ethane to Europe.  Rex Energy is shipping natural-gas liquids to cracker complexes in Europe.

    The State College, Pa.-based driller on Monday announced its export deal with INEOS Europe AG.

    Rex started shipping ethane this month, and will begin sending propane and butane to Europe in 2017 after the Mariner East 2 pipeline is completed. The pipeline will carry natural-gas liquids to a shipping terminal near Philadelphia, according to a press release.

    INEOS has invested $2 billion in the export project, and designed and chartered eight ships to carry natural-gas liquids across the Atlantic. On March 23, the company confirmed that one of its ships had delivered the first U.S. shale gas shipment to its plant in Rafnes, Norway.

    Rex Energy drills wells in the Utica and Marcellus shales of Ohio and Pennsylvania. It has drilled 37 Utica wells in Ohio.

    With the INEOS deal, Rex has three different outlets, domestic and international, for its natural-gas liquids, according to the press release.

    Cracker plants turn natural-gas liquids into chemicals used to make plastics and other products. A handful of companies have proposed building crackers in Ohio, Pennsylvania and West Virginia, but haven't started construction.
  • Rice Increasing Acreage in Greene County, PA.  Independent producer Rice Energy on Tuesday said it’s entered into a $200 million all-cash stalking horse asset purchase pact with a unit of bankrupt coal company Alpha Natural Resources for Marcellus and Utica Shale assets in Greene County, Pennsylvania.

    A stalking-horse bid is an initial bid on a bankrupt company’s assets from an interested buyer chosen by the bankrupt company, Kallanish Energy explains. From a pool of bidders, the bankrupt company chooses the stalking horse to make the first bid.

    Pursuant to the terms of the deal, Rice will acquire leasehold interest in roughly 27,400 undeveloped Marcellus acres, plus an additional 3,200 acres owned in fee leased to Rice and currently generating royalty cash flow.

    In addition, the aforementioned acreage includes rights to the deep Utica on roughly 23,500 acres.

    “This prospective acreage acquisition is consistent with our strategy of acquiring core acreage with strong returns, an attractive lease expiry profile and undedicated midstream,” said Toby Rice, chief operating company at Rice.

    Toby Rice added the acreage is directly adjacent to Rice’s existing proved developed Marcellus position in Greene County and increases its inventory of low-risk, core dry gas Marcellus locations by 37%.

    To help pay for the acquisition, Rice yesterday began an underwritten public offering of 23.5 million common shares.

    The company, based in Cecil Township, just outside Pittsburgh, Pennsylvania, will offer 20 million shares, while shareholder NGP Rice Holdings (an affiliate of private equity firm Natural Gas Partners) is putting up 3.5 million shares.

    NGP Rice Holdings is expected to grant the offering’s underwriter a 30-day option to purchase up to an additional 3.53 million shares of Rice’s common.
  • Some Pipeline Projects Delayed.  Some US natural gas infrastructure projects scheduled for completion this year may be delayed until 2017, industry officials said today, as volatile prices add unprecedented uncertainty to construction plans.

    The concentration of gas supply regions, along with reversals in original pipeline design, may prompt developers to reduce the mileage of some projects while only adding compression and looping facilities, ICF vice president Kevin Petak said, speaking at an event hosted by the Ingaa Foundation.

    Completion of numerous gas pipeline projects has been delayed from this year to 2017-18, said Sheehan Pipe Line Construction chief executive Robert Riess. "It begs the question of what will happen to those scheduled for completion in 2017-18. Those projects are viable and have end-users," he said.

    For example, the proposed Constitution pipeline from the Marcellus to upstate New York has been delayed for nearly a year until the second half of 2017 to comply with environmental conditions set by the Federal Energy Regulatory Commission.

    Energy Transfer's Rover project from the Appalachian region into Ohio is now expected in service in late 2017, a year later than planned. And the 1 Bcf/d PennEast pipeline from Pennsylvania to New Jersey has been delayed for year until late 2018.

    Midstream energy infrastructure capital spending has declined from levels of recent years, according to the Ingaa Foundation, the study arm of the Interstate Natural Gas Pipeline Association of America. The group commissioned the study by consultants ICF International. Overall spending on natural gas, oil and natural gas liquids facilities are estimated at $546bn for the next two decades, with natural gas spending comprising 60pc.

    The group's prior study two years ago suggested total spending would be $313bn over roughly the same period.
  • Rangeland Starts Binding Open Season for West Texas Pipeline. Midstreamer Rangeland Energy Tuesday began a binding open season for its RIO Pipeline, a 109-mile, 12-inch, 125,000 barrels per day (BPD) capacity crude oil/condensate line in West Texas.

    Specifically, the pipeline, currently under construction, will flow product produced in the Delaware Basin in the Permian to terminals in Midland, Texas, and takeaway pipelines bound for Cushing, Oklahoma, the Gulf of Mexico Coast, and other market centers.

    The pipeline originates at Rangeland’s State Line Terminal in Loving County, Texas, where Sugar Land, Texas-based Rangeland has constructed truck unloading and crude storage facilities.

    Unloading facilities and tanks also have been constructed at the destination terminal in Midland, where additional space is available to build customer-leased crude storage, Kallanish Energy understands.

    “The Delaware Basin remains one of the most economic and prolific resource plays in the country, and we are dedicated to making sure that our customers have the infrastructure and the optionality they need to move production to market,” said Pat McGannon, vice president of Business Development for Rangeland.

    A long-term connection agreement has been executed with Plains Pipeline for delivery to the Plains Midland South terminal, giving shippers access to multiple terminals at Midland as well as outbound pipelines.

    The open season closes on May 20. The project is expected to become operational in July.
  • PA Legislature Says, “No” to New Regulations.  Pennsylvania House and Senate energy committees on Tuesday disapproved new regulations designed to upgrade operating standards for both Marcellus Shale and conventional oil and gas companies.

    Some legislators went as far as stating the rule-making process was illegal.

    Disapproval doesn’t automatically halt the revisions to the state’s drilling rules proposed by the state Department of Environmental Protection (DEP). The legislators did urge the state’s Independent Regulatory Review Commission to reject the rules when it considers them on April 21, a major step before the rules take effect.

    DEP has been working on the oil and gas rules for five years, Kallanish Energy learns.

    The revisions ban some kinds of waste pits, add protection for public resources near well sites, enhance clean-up standards for spills and require companies to look for abandoned wells located near new wells.

    Legislators who want DEP to scrap its rules and start over say the agency did not differentiate in the standards between sophisticated, large-scale shale operations and traditional, shallow oil and gas wells operated by small businesses, as mandated by a 2014 law.

    “They blatantly ignored the law,” Representative Martin Causer, Republican-Cameron County, told the Pittsburgh Post-Gazette.

    Republican-sponsored motions to disapprove the rules even attracted support from a few Democrats.

    Senator John Yudichak, Democrat-Luzerne County, told the Post-Gazette he supports strong oil and gas regulations, but the regulatory process was “circumvented in many respects” by DEP.

    DEP Secretary John Quigley said the regulations “have been written with an unprecedented amount of public participation” and the final draft reflects public input and the agency’s experience regulating both drilling industries.

    The Legislature will have an opportunity to vote to block the rules even if the Independent Regulatory Review Commission approves them, but that action would be subject to a veto from Governor Tom Wolf.
  • Williams Wins FERC Approval in for NJ Pipeline.  Pipeline giant Williams Partners said Thursday the Federal Energy Regulatory Commission (FERC) approved an application for subsidiary Transco’s Garden State Expansion project.

    The expansion will allow Transco to deliver 180 million cubic feet per day (MMcf/d) of additional natural gas to thousands of New Jersey customers, Kallanish Energy finds.

    The project consists of additional compression to provide natural gas transportation service and increased reliability to New Jersey Natural Gas, which serves more than a half-million customers in New Jersey’s Monmouth, Ocean and parts of Morris, Middlesex, Sussex and Burlington counties.

    The project will run from Transco’s Zone 6 Station 210 Pooling Point in Mercer County, New Jersey, to a new interconnection on its Trenton Woodbury Lateral in Burlington County, New Jersey.
  • Mountaineer Announces Non-Binding Open Season for NatGas Storage.  Mountaineer NGL Storage, LLC, announced this week that it is holding a non-binding open season for up to 1.6 million barrels of initial storage capacity with more than 25,000 bbls per day of load-in and load-out. The storage will be made available through a natural gas liquids storage facility (the Mountaineer NGL Storage Project) in Monroe County, Ohio, near Clarington, Ohio, along the Ohio River.

    The Mountaineer NGL Storage Project will use the subsurface Salina salt formation as the storage zone. It intends to provide storage services to a growing number of gas processors, producers, markets and commodity traders that are interested in exploiting the wet gas production from the Marcellus/Utica shales. The project will be designed to store ethane, propane, butane and y-grade products. It will offer a highly flexible service that can be specifically tailored to each customer's needs, providing an on-demand asset to help manage strategic liquids requirements.

    "The Marcellus shale and the Utica shale below it have surprised the entire industry and are fast becoming the next super-producers of natural gas supply in this country, but there is a dire need for reliable storage solutions," said David Hooker, managing director of Mountaineer NGL Storage. "This project will be strategically located to provide service to the expanding network of pipelines, rail and barge infrastructure that is currently being built to transport Marcellus and Utica natural gas liquids to markets throughout the Northeast, Mid-Atlantic, Mid-Continent and Gulf Coast."

Visit our Blog for daily updates on what’s happening in the oil & gas industry.

Rig Count

  • Baker Hughes Rig Count the week of April 15, 2016
  • PA     
    • Marcellus 16 down 1
  • Ohio
    • Utica 12 unchanged
  • WV
    • Marcellus 12 unchanged
  • TX
    • Eagle Ford – 42 down 1
  • TX & NM
    • Permian Basin – 141 down 1
  • ND
    • Williston – 26 down 1
  • CO
    • Niobrara – 17 unchanged
  • TOTAL U.S. Land Rig Count 409 down 5

PA Permits for February April 7, to April 14, 2016

       County           Township            E&P Companies

1.    Clinton             Grugan                 Anadarko
2.    Greene             Center                  EQT
3.    Greene             Center                  EQT
4.    Greene             Center                  EQT
5.    Susquehanna    Franklin                SWN
6.    Washington       Amwell                 EQT
7.    Washington       Donegal                Range
8.    Washington       Donegal                Range
9.    Washington       Donegal                Range
10.    Washington     Union                    EQT
11.    Westmoreland  South Huntingdon  Chevron
12.    Westmoreland  South Huntingdon  Chevron
13.    Westmoreland  South Huntingdon  Chevron

OH Permits for week ending April 9, 2016

       County      Township   E&P Companies

1.    Monroe       Salem        Statoil
2.    Noble         Beaver        Antero
3.    Noble         Beaver        Antero

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Utica Summit 2019