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1Permit Activity last week. 

  • PA – 16; Chesapeake in Bradford; EQT and Rice in Greene; Shell in Tioga
  • OH –12; Gulfport in Belmont; Eclipse Resources in Noble; American Energy Utica in Belmont & Monroe

Expo/Industry events for the next few months:

OOGA Winter Meeting – March 11-13, 2015, Columbus, OH

http://oogawintermeeting.com/

Utica Upstream 2015 – April 8, 2015, Canton, OH

https://www.cantonchamber.org/utica-upstream

Upstream PA 2015 – April 16, 2015 Penn State

http://upstreampa2015.com/

Latest facts and a rumor from the Marcellus and Utica Shale

Marcellus-Utica Midstream Speaker Observations
In reviewing some of the MUM presentations, I want to identify some key information in order to provide overview of the conference.

  • Crestwood Midstream – Edmund Knolle
     
    • NE Marcellus reserves will supply the region for generations.
    • More infrastructure required to bring regional gas to regional markets
    • NE market demand will grow significantly over next 10 years driven by coal retirements and new gas fired power plants sited near low cost reserves
    • Increased regional use of natural gas for electric generation will increase short term volatility and the need for regional liquidity and balancing services
       
  • Navigator Energy Services – John O’Shea
     
    • Producer Budgets 2015
      • Cabot             +4.3%
      • Southwestern    +8.3%
      • Range            (18.2%)
      • Rex            (44.4%)
      • Antero            (41.0%)
         
    • Kinder Morgan – Karen Kabin
       
      • Kinder Morgan Projects
        • Utopia East – 330 miles, 12”
          • Ethane/Ethane Propane Mix
          • Harrison County, OH to Windsor Ontario
          • January 1, 2018 in-service
        • Utopia West – 450 miles, 12”
          • Natural Gasoline (Diluent)
          • Harrison County, OH to Illinois
          • January 1, 2018 in-service
        • Utica Marcellus Texas Pipeline
          • Purity NGL’s, mixed NGL’s, Condensate to the U.S. Gulf Coast
          • TPG Station
          • 155 miles new build in the Appalachian Basin1005 miles of conversion
          • 200 miles new build from TPG Station 40
          • Mont Belvieu fractionation and dock acces
             
      • Blue Racer Midstream – William Scott
        • BRM  (Current  Assets)
          • 647 miles of gathering pipeline  
          • 400 MMcf/d of processing capacity    
          • 47,000 Bbls/d of frac capacity    
          • 2,500 Bbls/d of condensate capacity  
          • 133 miles of NGL and condensate transportation
             
        • BRM  (Assets  Under  Construc7on)
          • 200 miles of gathering pipeline  
          • 400 MMcf/d of processing capacity    
          • 76,000 Bbls/d of frac capacity  
          • 32 miles of NGL and condensate transportation
             
        • Natrium Complex
          • Natrium  I  Processing  &  Fractionation  became  fully  operational  in  May  2013  
          • Natrium  II  Processing  Plant  (200  MMcf/d)  became  fully  operational  in April  2014  
            • Location:  Ohio  River  in  West  Virginia  
            • Resources:  Two  200  MMcf/d  cryogenic  processing  plants  (400  MMcf/d  of  Processing  Capacity)  
            • Fractionation:  123,000  Bbls/d  (Q3 2015)  
              • 2,500 Bbls/d  of  onsite  stabilization  
              • Rail,  trucking  and  Barge(under construction)  
          • Residue  takeaway  options  
          • Liquids  handling  options
            • NGL’s  
            • Condensate
               
        • Berne  I  &  II  
          • Location:  NW  Monroe  County,  Ohio  
          • 400  MMcf/d  under  construction
            • Berne  I: 200 MMcf/d  cryogenic processing  plant  that  is  mechanically  complete  with  an operation  date  of  Q1  2015
            • Berne  II: 200 MMcf/d  cryogenic processing  plant  with  expected  Q2 2015  completion  
          • Site  can  accommodate a third plant  
          • Residue  Takeaway:  Currently  TETCO  
             
        • The Utica: Challenges Ahead
          • The  next  two  years  is  pivotal  
            • Bulk  of  natural  gas  infrastructure  decisions made  
            • Decisions  based  on  the  supply/demand needs    
            • Inadequate  infrastructure  to  meet  supply  
          • Higher  upfront  costs  with  new  pipeline  projects  
            • Promotes potential JVs with  midstream companies  
          • To  alleviate  those  challenges
            • Midstream  companies  such  as  Blue  Racer will  continue to  increase  their  gathering and  processing  capacity  over  the  next  10  years  to  meet  the  supply    
              • An  estimated ~ $30billion  will  need to be spent  on  infrastructure  development  to meet  the  supply
                 
  • Nat Gas drillers undaunted.  U.S. natural gas production is poised to reach a record for a fifth year as shale drillers boost efficiency, driving prices toward a low of more than a decade.

    Output will rise 3.2 percent in 2015, led by gains at the Marcellus formation, the nation’s biggest shale deposit, according to the Energy Information Administration. Marcellus production will increase 2.8 percent through February after a 21 percent gain in 2014, a year when prices tumbled 32 percent. Producers in Pennsylvania and West Virginia have cut break-even costs by half since 2008, according to Oppenheimer & Co.

    Drilling more wells at one site and extending the length of horizontal wells are among the efficiencies that have helped gas companies cope with falling prices. The EIA expects Marcellus to climb to about 20 percent of production in the lower 48 states from about 2 percent in 2007. Cabot Oil & Gas Corp., the biggest Marcellus producer, plans to increase output by at least 20 percent this year.

    “The Marcellus has been a game changer in terms of production, reserve potential, everything,” said Fadel Gheit, a senior energy analyst for Oppenheimer & Co. in New York. “They are not waiting for higher gas prices to bail them out.”
    Gas Prices

    Natural gas futures fell 0.8 cent to trade at $2.592 per million British thermal units at 8:06 a.m. on the New York Mercantile Exchange. Thursday the contract closed at the lowest since June 2012. Gas has declined 81 percent from a high in 2008 as production from shale formations increased, touching $1.907 in April 2012, the lowest since 2002.

    Break-even prices for Marcellus producers have dropped below $2 per thousand cubic feet ($1.95 per million Btu) from around $4 in 2008, Gheit said in a Feb. 3 interview.

    U.S. gas production growth was projected to slow to 1.4 percent last year, the least since a decline in 2005, the EIA said in December 2013. Instead, output jumped 5.6 percent. Efficiency gains at Marcellus producer Range Resources Inc. include plans to increase the length of underground horizontal wells by 36 percent to 6,200 feet (1,890 meters), with a third of the total topping 7,000 feet, according to a Jan. 15 company presentation. Range used drilling efficiencies to cut costs to $2.64 per thousand cubic feet in 2014 from $3.01 in 2012.
    Shale Deposits

    The company said that it’s targeting 20 percent to 25 percent production growth “for many years.”

    Southwestern Energy Corp.’s output may rise 28 percent this year as it drills longer wells, increases pipeline capacity and after spending $5.4 billion to acquire shale fields, according to a Dec. 30 company conference call.

    Output is also rising at other shale plays. Gas production at the Eagle Ford deposit in Texas has climbed more than fourfold since January 2007, while output at the Utica shale, much of which lies below the Marcellus, has increased 12-fold.

    Proved U.S. gas reserves, supplies that can be recovered based on economic and operating conditions, jumped 9.7 percent in 2013 to 354 trillion cubic feet, equal to about 13 years of demand, a December EIA report showed.

    “Just the magnitude of the build-out in shale and the pace at which it gained momentum is surprising,” Jason Schenker, president of Prestige Economics LLC in Austin, Texas, who was ranked by Bloomberg in the fourth quarter as the top gas price forecaster, said Jan. 29. “Supplies will remain high. We could test the 2012 lows this spring in natural gas prices.”
    Pipeline Gains

    While they save money at the wellhead, Marcellus producers have been able to bolster sales of the fuel as new interstate pipelines give them access to more lucrative markets priced at Henry Hub in Erath, Louisiana, the U.S. gas benchmark.

    “The Northeast has been at a discount to Henry Hub and more pipelines that come on will narrow this to the cost of transport,” Moses Rahnama, an analyst at London-based consultants Energy Aspects Ltd., said by phone on Jan. 5. “That will be more of an incentive to drill.”

    New pipelines near the Marcellus deposit will allow Range to ship 63 percent of its production outside of Appalachia, the company said Jan. 15.

    Cabot plans to increase output by 20 percent to 30 percent in 2015, and will “re-accelerate activity” once the new Constitution pipeline from Pennsylvania to upstate New York comes into service later this year or in 2016, the company said in November.

    “All these companies tell us the growth rate will be maintained,” Gheit said. “Gas prices continue to be lower because people are convinced no matter how low gas prices go; these guys are not going to stop growing.”
     
  • Not all rigs are equal.  The rig count last week was down 90 units (5.5%).  Almost the entire drop came from oil-directed rigs (90 of 94).  A large portion of the drop in the past year and the last week has come from the smaller vertical rigs.  Last week horizontals dropped 4.9% while verticals dropped 8.9%.

    The largest drop was in the Permian.  The Williston, Eagle Ford and Niobrara were fairly stable.  The Marcellus-Utica did not see any decline in the rig counts.  It should be noted that in PA and WV there is drilling in the Upper Devonian which is not reported.
     
  • Marcellus has $4.2 billion impact on PA.  A consultant hired by Sunoco Logistics Inc. to evaluate the economic impact business related to the extraction of gas from the Marcellus Shale says the company’s investment could result in a $4.2 billion infusion into Pennsylvania’s economy.

    It also would create 300 to 400 permanent jobs across the state and support more than 30,000 jobs during construction of the terminal facility in Marcus Hook and the Mariner East pipeline.

    Sunoco Logistics hired Philadelphia-based Econsult Solutions Inc. to study the fiscal impact of the Mariner East projects, which are part of the company’s plans to invest about $3 billion to move natural gas liquids from western Pennsylvania, West Virginia and eastern Ohio to the Marcus Hook Industrial Complex.
     
  • EQT cuts budget.  EQT Corp. will cut the number of Marcellus Shale wells it drills in 2015 by one third because of low commodity prices.

    The company announced it is cutting its 2015 capital budget from $2.5 billion to $2.05 billion.

    Its new forecast calls for drilling 122 wells in the Marcellus, concentrating in southwestern Pennsylvania and northern West Virginia, and five wells in the Permian Basin in Texas.

    In 2014, the company drilled 196 Marcellus wells, 103 Huron wells and 41 Upper Devonian wells.
     
  • Seneca reports good 2014; drilling to slow in 2015.  Seneca Resources Corporation reports its production of natural gas and crude oil for the current fiscal quarter totaled 48.2 billion cubic feet equivalent (“Bcfe”), a roughly 11.1 Bcfe or 29.8 percent increase from the first quarter of 2014.

    The company credits 96 percent of the increase, or 10.7 Bcfe, to strong natural gas well results in Lycoming County and the Clermont-Rich Valley area in Elk County, near its border with McKean and Cameron counties. Production between the two Pennsylvania regions saw a 33.5 percent jump from last year, the company reports.

    Meanwhile, parent company National Fuel reports earnings of $84.7 million, up from $82.2 million in the first quarter of last year.

    “The first quarter was a very good start to our 2015 fiscal year,” Ronald J. Tanski, president and chief executive officer of National Fuel Gas Company said in a release. “Our Upstream business continues to develop and highlight the quality of our Marcellus acreage. Our Midstream companies continue the build-out of gathering and transmission pipeline infrastructure in Appalachia, providing more capacity to move Marcellus supplies to market.”

    But while reporting sizable growth in regional Marcellus Shale natural gas production, overall, the company says continued low gas prices are likely to slow operations here, and elsewhere across the country, over the next 12 to 18 months.
     
  • Shell well site vendors are busy.  It appears that Shell is not slowing down it drilling activity like many of the E&P Companies in the Marcellus.  Shell is continuing to secure drilling permits.  (RUMOR)
     
  • Chevron selling some acreage.  Chevron Appalachia is looking for a buyer for some of its Marcellus Shale acreage in western Pennsylvania.

    According to listings on the EnergyNet Inc. website, an oil and gas auction service, Chevron is selling two tracts, one in Cambria and the other in Cambria, Bedford and Blair counties. All told, the tracts cover about 15,600 gross acres.
     
  • The consensus is 20% cuts.  At the Marcellus-Utica Midstream conference last week, one of the common topics was the size of the cuts.  Most companies have received letters or calls asking for 20% cuts in costs.  Companies commented that they were not making a 20% profit therefore; it could not cut costs 20%.  It’s going to be interesting to see how this unfolds.  (RUMOR)
     
  • Nat Gas production down in January.  Natural gas production in the Lower 48 States fell by 1.3 billion cubic feet per day (Bcf/d) to 71.4 Bcf/d during January, according to Bentek Energy, the analytics and forecasting unit of Platts.

    While January production was below peak levels reached in December 2014, it represents a 10.5% increase (6.8 Bcf/d) over daily average production levels reported in January 2014, Shale Energy Business Briefing (SEBB) understands.

    “Cold weather disrupted operations in January, driving production lower during the month," said Catherine Bernardo, Manager of Energy Analysis for Denver-based Bentek. "Freeze-offs caused supply disruptions in several regions, including the Rockies, Midcontinent, Texas, and the wet gas areas of the Northeast. Bentek expects production growth to return in February as temperatures warm."
     
  • New pipelines in West Texas.  Plains All American said Thursday, Feb 5; it will build two new crude oil pipelines and associated gathering systems in West Texas and New Mexico to move Permian Basin production to markets.

    Both projects will increase infrastructure to move output from the Delaware Basin portion of the Permian. Plains will extend its Avalon pipeline in Loving County into Culberson County with a 32-mile, 12-inch line offering 100,000 barrels per day (BPD) of capacity.

    The project is slated for initial startup in July and full operation in September.

    Plains also will build the 60-mile, 16-inch State Line Pipeline to connect Culberson County output to Wink, TX, along the Texas-New Mexico state border. The 150,000 BPD pipeline will move Delaware Basin output in Eddy and Lea Counties in New Mexico and Loving, Reeves, and Culberson Counties in Texas to existing Plains operations.
     
  • LNG Plant coming to LA.  Live Oak LNG, a subsidiary of Parallax Energy, is planning to develop a $2 billion natural gas liquefaction (LNG) and export project near Lake Charles, LA.

    With a capacity of up to five million metric tons per year (MMTPY) production, the project will feature two 4.59 million cubic feet (MMcf) storage tanks, and port facilities for standard size liquefied natural gas (LNG) carriers.

    Scheduled to begin operation in late 2019, the project will be located within Calcasieu Parish on the west bank of the Calcasieu River.
     
  • Victory and Lucas merge. Two smaller independent oil and gas producers, including Austin, TX-based Victory Energy and Houston-based Lucas Energy, have agreed to merge in an all-stock transaction.

    Victory Energy, focused on the Permian Basin in West Texas, and Lucas, concentrated in the Austin Chalk and Eagle Ford plays, has executed a letter of intent and term sheet for the deal.

Rig Count

  • Baker Hughes Rigs count for the week Feb. 6th.
     
  • PA
    • Marcellus 52 rigs – unchanged
    • Utica 2 unchanged
  • Ohio
    • Utica 39 down 2
  • WV
    • Marcellus 19 down 4
  • TX
    • Eagle Ford – 168 down 10
    • Permian Basin – 343 down 28
  • NM
    • Permian Basin – 74 down 9
  • ND
    • Williston – 132 down 11
  • MT
    • Williston – 5 unchanged
  • CO
    • Niobrara – 45 down 3
       
  • TOTAL U.S. Rig Count 1456 down 87

PA Permits for January 29 to February 5, 2015

       County            Township            E&P Companies

1.    Bradford            Litchfield              Chesapeake
2.    Bradford            Rome                  Chesapeake
3.    Bradford            Ulster                  Chesapeake
4.    Bradford            Wysox                Chesapeake
5.    Greene              Morgan                EQT
6.    Greene              Morgan                EQT
7.    Greene              Morgan                EQT
8.    Greene              Morgan                EQT
9.    Greene              Springhill              Rice
10.    Greene             Springhill              Rice
11.    Greene             Springhill              Rice
12.    Greene             Springhill              Rice
13.    Susquehanna    Jackson               Southwestern
14.    Susquehanna    Jackson               Southwestern
15.    Tioga                Sullivan                Shell
16.    Tioga                Sullivan                Shell

OH Permits – weeks ending January 31, 2015

       County               Township             E&P Companies

1.    Belmont                Wheeling             Amer. Ener. Utica
2.    Belmont                Wheeling             Amer. Ener. Utica
3.    Belmont                Somerset             Gulfport
4.    Belmont                Kirkwood             Gulfport
5.    Belmont                Kirkwood             Gulfport
6.    Belmont                Kirkwood             Gulfport
7.    Monroe                 Washington         Amer. Ener. Utica
8.    Noble                    Marion                 Eclipse Resources
9.    Noble                    Marion                 Eclipse Resources
10.    Noble                  Marion                 Eclipse Resources
11.    Noble                  Marion                 Eclipse Resources
12.    Tuscarawas         Mill                     Chesapeake


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Midstream PA