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Expo/Industry events for the next few months

South Texas Oilfield Expo
July 29-30, 2015
San Antonio, TX

Shale Insight 2015
September 16-17, 2015
Philadelphia, PA

Midstream PA 2015
October 1, 2015
Penn State

Utica Summit III
October 13, 2015
Canton, OH

DUG Eagle Ford + MIDSTREAM Texas
October 25-27
San Antonio, TX

Latest facts and a rumor from the Marcellus and Utica Shale

  • What does the Halliburton consolidation in OH mean? Ever since I placed the announcement about Halliburton’s consolidation in Zanesville, OH, I been wondering what this means for drilling in OH the remainder of 2015 and 2016.  

    Halliburton is closing its Homer City, PA, office which had been in existence ever since I got into the business in 2009, and moving some of its people to OH.  Halliburton would not make that move without seeing work coming in the Utica.  

    If you look at this week’s permitting activity in OH, you’ll see there were 19 permits issued which is the highest amount in weeks.  What’s most interesting is the permitting activity is led by Eclipse Resources and Antero.  Both of these companies have not done any permitting for weeks.  

    Halliburton must be expecting an increase in drilling in the Utica the remainder of this year and next.
  • Who is behind JKLM Energy?  If you read the permitting activity for PA last week, you saw a new E&P Company called JKLM Energy.  I learned this week that Terry Pegula, the previous owner of East Resources, is involved with JKLM.  Pegula sold East Resources to Shell for $4.7 billion.  I thought Pegula would be happy running the Buffalo teams that he bought – Bills and Sabre, but I guess he misses the fun of oil and gas.
  • Cracker plant in Coudersport, Potter County, PA.  There’s activity going on in Coudersport regarding the building of a cracker plant or some type of refinery.  I’ve learned the last couple of years that small “boutique cracker” can be relatively inexpensive to build compared to other crackers.  In Coudersport, there is the hub for the Niagara pipeline.  We’ll keep an eye on this one  (RUMOR)
  • May oil production report.  U.S. oil production fell slightly in May and will likely continue falling until early next year, as plunging crude oil prices continue punishing domestic producers, according to a new federal report.

    Oil and gas companies pumped 50,000 fewer barrels per day (BPD) between April and May, with major crude producing states like North Dakota reporting declines in onshore output, according to the U.S. Energy Information Administration’s monthly Short-Term Energy Outlook.

    The EIA predicts shale drilling will continue slowing due to the global oil collapse. Production is expected to fall through February as drilling becomes increasingly uneconomic in various regions, spurring producers to continue pulling back from marginal plays to instead focus on the sweet spots of the nation’s largest shale plays, the government said.

    “The forecast decline in U.S. monthly oil production through early 2016 is the result of low oil prices, which pushed oil companies to reduce their investment in drilling that resulted in the lowest number of rigs drilling for oil in nearly five years,” said EIA administrator Adam Sieminski.

    Even with domestic benchmark (West Texas Intermediate, or WTI) oil slated to average about $55 per barrel this year, the core spots of the Bakken, Eagle Ford, Niobrara and Permian basins remain economically viable to support development drilling, the EIA said.

    As rigs and wells become more efficient and productive, and the costs to drill and complete wells continue falling, onshore production will grow again in late 2016, according to the EIA.

    Despite the slowdown in the U.S. oil patch, producers still are expected to pump more oil in 2015 than they have in 45 years, with output expected to average 9.5 million barrels per day (MMBPD). That’s roughly 40,000 BPD more than EIA projected in June, as the agency revised its estimates upward to take into account more Gulf of Mexico production scheduled to come online in the second half of the year.
  • Natural gas production slows.  Natural gas production in the Northeast declined during May and June, contributing to total U.S. production in June averaging 78.2 billion cubic feet per day (Bcf/d), down 1.2 Bcf/d from April.

    The decline largely reflects maintenance and construction in the U.S., specifically in the Marcellus Shale play, according to the Energy Information Administration’s July edition of its Short-Term Energy Outlook (STEO). EIA expects production growth will resume in July.

    Further, EIA expects marketed natural gas production will increase by 4.3 Bcf/d (5.7%) and by 1.6 Bcf/d (2.0%) in 2015 and 2016, respectively. Despite recent declines, natural gas production remains high, and EIA expects continued growth through 2016, with increases in the Lower 48 States expected to more than offset long-term production declines in the Gulf of Mexico.

    The agency left its Q4 production estimate unchanged from June at 79.66 Bcf/d and bumped up its full-year 2015 estimate 10 MMcf/d to 78.97 Bcf/d.

    "US natural gas marketed production growth is forecast to slow in 2016, but output is still expected to flow past 80 Bcf/d for the first time," EIA Administrator Adam Sieminski said Tuesday.

    In the report, EIA projected 2016 production to average 80.56 Bcf/d, with most of the growth in 2015 and 2016 coming from the Marcellus.

    Sieminski said EIA has added more states to its monthly output survey, which now includes about 95% of total U.S. gas production and will allow the agency to keep better track of production.

    EIA expects natural gas exports to Mexico, particularly from the Eagle Ford Shale in South Texas, to increase because of growing demand from Mexico's electric power sector, coupled with flat Mexican natural gas production.
  • First Hotel in Cadiz, Harrison County, OH.  Last week, we announced the opening of the MarkWest’s Utica headquarters in Cadiz.  Now it has its first hotel.  The 81-room Microtel Inn & Suites by Wyndham opened June 18 and a grand opening celebration will take place in the next week.  I’m sure more hotels will be opening in Cadiz.
  • Laid off oil and gas engineers being targeted.  Refineries and chemical plants struggling to find enough experienced people to replace a swell of retiring workers are hoping to scoop up some engineers laid off by oil and gas firms.

    The global oil slump is striking the upstream sector at a critical moment for downstream companies as they scramble to address a growing problem of a lack of qualified middle-management workers rising through the ranks, according to a new analysis by executive search firm Proco Global.

    The glut of trained professions between the ages of 30 and 45 has forced some downstream companies to offer higher-than-average salaries and lucrative benefits packages, according to interviews the firm conducted with executives at some of the world’s largest chemicals companies, including Dow, Monsanto and Air Liquide.

    Texas plants tend to have an easier time attracting and retaining talent because the state doesn’t have an income tax, but companies in “less desirable” locations often have to sweeten pay and benefits packages, said Brandon Dyer, Proco Global’s executive consultant who leads North American recruitment across the chemicals and processing industry.
  • Energy Transfer could go hostile.  Saying it was reacting to inquiries from stockholders, Energy Transfer Equity (ETE) said Wednesday that despite recent turmoil in the world energy and financial markets, the company’s $53 billion offer for Williams Cos. stands.

    Specifically, ETE would acquire all of the outstanding common stock of Williams at a fixed exchange ratio of 0.9358 ETE shares for each Williams share, representing a 32.4% premium to the Williams common share closing price at June 19, based on ETE’s unit price on the same date.
  • Drilling for dry gas in the Utica.  Rex Energy has decided to try its luck with the dry gas portion of the Utica Shale, announcing plans to sink a test well in Lawrence County.

    The company said on Wednesday that the well, the Patterson 2H, is to be completed by the end of this quarter and placed into sales by the end of the year.

    "Our first test well in the Western Lawrence Utica is another important step for Rex Energy as we continue to develop our core assets," said Rex CEO Tom Stabley in a statement. "With 200 drilling locations in the Western Lawrence Utica and gathering and processing infrastructure already in place, the Western Lawrence Utica acreage provides us with flexibility within our Appalachian Basin assets," he said.

    Rex joins a growing list of producers that have or are tapping the dry Utica. Those include Range Resources, EQT Corp. and Rice Energy.
  • Oil price drop will not impact production.  Despite the recent drop in the price of crude, Global Hunter Securities Mike Kelly says don't expect U.S. shale companies to start cutting capital spending.

    One reason is corporate budgets were set at the end of 2014 when oil was hovering around $50 a barrel, Kelly said Tuesday on CNBC’s “Power Lunch.” In addition, oil exploration and production companies are doing better than expected this year.

    "They're drilling bigger wells; they're drilling them faster and actually a lot cheaper than expected, too," the managing director and senior analyst at Global Hunter said.

    A survey Global Hunter Securities conducted after first-quarter earnings showed roughly 50% of the 70 companies the firm follows are potentially set to increase their budgets. That was done at a time when oil was between $55 and $60 a barrel.

    "We don't expect major cuts here in most programs going forward. Actually, in second-quarter earnings, we may even hear some guys increasing the budgets," Kelly said.

    U.S. crude has lost almost 10% of its value since Thursday's close for the sharpest two-day fall since 2011.

    "You are going to see the guys with really high-quality acreage positions, those that are in the core of the Eagle Ford, or the Permian or even the core of the Bakken is able to really press on here," Kelly said.

    A nuclear deal with Iran may also weigh on the oil market, according to Ed Morse, head of commodities research for Citigroup, also guesting on Tuesday’s “Power Lunch.”

    A deal would bring more of the country's crude into an already oversupplied market. However, Morse said the impact really depends on how much oil Iran releases and how quickly.
  • Snyder Bros. to start drilling in Armstrong County, PA.  A Kittanning oil and gas company could start construction on four Marcellus shale wells in Armstrong County as soon as this fall.

    The Snyder Brothers company is waiting on approval of state permits for drilling on land near Furnace Run Road in East Franklin. Snyder Brother's plan proposes drilling horizontal wells at the site, said Todd Kunselman, manager of drilling at the company.

    “The pad should be drilled this fall through the winter months,” Kunselman said.

    How soon the wells produce natural gas depends on a number of factors, like weather and the availability of the rigs needed to drill them.
  • Refracking could reap big returns.  The technique itself is nothing new. Oil crews across the world have been schooled on its simple principles for generations: Identify aging, low-output wells and hit them with a blast of sand and water to bolster the flow of crude. The idea originated somewhere in the plains of the American Midwest, back in the 1950s.

    But as today’s engineers start applying the procedure to the horizontal wells that went up during the fracking boom that swept across U.S. shale fields over the past decade, something more powerful, more financially rewarding is happening.

    The short life span of these wells, long thought to be perhaps the single biggest weakness of the shale industry, is being stretched out. Early evidence of the effects of restimulation suggests that the fields could actually contain enough reserves to last about 50 years, according to a calculation based on Wood Mackenzie Ltd and ITG Investment Research data.

    Peak Shale Oil

    America’s tight-oil production is set to peak in 2020, based on U.S. forecasts, but a technique known as refracking could keep output booming for longer by increasing the yield from old wells.

    If the word fracking has carved out a spot in the lexicon of Americans as the nation advances toward energy independence, then refracking, as roughnecks have begun calling it, could be next. And for an industry that has been hammered by the 50 percent drop in crude prices over the past year, the finding on the technique’s potential — at a fraction of the cost of the initial well — provides a much-needed sense of hope.

    The risks abound — from inadvertently siphoning oil from an adjacent well to ruining a whole reservoir — and the sample size so far isn’t big enough to be conclusive, but oil giants like Marathon Oil Corp. and ConocoPhillips aren’t waiting to incorporate refracking into their shale operations.
  • Magnum Hunter working out its finances.  Magnum Hunter Resources Corp. still has not raised its mandated $65 million, but its lead lender has reached a new deal with the Utica shale driller that eliminates the requirement.

    The company (NYSE:MHR) shed acreage and announced plans to sell its lucrative Eureka Hunter pipeline business in a bid to raise capital. The deadline to raise the money has been delayed multiple times, with Friday being the most recent.

    Now, Magnum Hunter and the Bank of Montreal (NYSE: BMO) have agreed to "certain amendments and waivers" that includes the bank assuming the interests of other lenders that don't agree with the new deal.

    "The amendments will, among other things, permanently eliminate the company's obligation under the facility to raise $65 million in net cash proceeds from certain specified transactions by July 10, 2015," Magnum Hunter said in a statement.

    Magnum Hunter still needed to raise almost $10 million. It prices the sale of its Eurkeka Hunter pipeline between $600 million and $700 million. Magnum Hunter is also looking to form new joint ventures – one for Ohio and one for West Virginia, CEO Gary Evans recently told a Pittsburgh conference.

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

Rig Count

  • Baker Hughes Rigs count for the week July 10, 2015
    • PA
      • Marcellus 43 down 2
      • Utica 2 unchanged
    • Ohio
      • Utica 19 up 1
    • WV
      • Marcellus 18 down 1
    • TX
      • Eagle Ford – 102 down 4
      • Permian Basin  193 up 3
    • NM
      • Permian Basin – 47 up 4
    • ND
      • Williston – 70 down 6
    • MT
      • Williston – 1 unchanged
    • CO
      • Niobrara –28 up 2
    • TOTAL U.S. Rig Count 863 up 1

PA Permits for July 2, to July 9, 2015

       County                Township             E&P Companies

1.    Armstrong             Kittaning              EQT
2.    Beaver                  New Sewickley     PennEnergy Res.
3.    Bradfrod                Albany                Chesapeake
4.    Tioga                    Chatham              Shell
5.    Tioga                    Chatham              Shell
6.    Tioga                    Chatham              Shell
7.    Washington           Amwell                EQT
8.    Washington           Amwell                EQT
9.    Washington           Amwell                EQT
10.   Washington          Chartiers              Range
11.    Washington         Chartiers              Range

OH Permits – week ending July 4, 2015

       County                Township          E&P Companies

1.    Harrison               Short Creek        Hess
2.    Harrison               Athens               Hess
3.    Harrison               Athens               Hess
4.    Harrison               Athens               Hess
5.    Harrison               Athens               Hess
6.    Monroe                Salem                Eclipse
7.    Monroe                Salem                Eclipse
8.    Monroe                Adams               Eclipse
9.    Monroe                Adams               Eclipse
10.    Monroe              Adams               Eclipse
11.    Monroe              Salem                Eclipse
12.    Monroe              Salem                Eclipse
13.    Monroe              Salem                Eclipse
14.    Noble                Beaver                Antero
15.    Noble                Beaver                Antero
16.    Noble                Beaver                Antero
17.    Noble                Beaver                Antero
18.    Noble                Beaver                Antero
19.    Noble                Beaver                Antero

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Midstream PA