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Expo/Industry events for the next few months

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

Great Fallfest
Wyoming County PA
September 24, 2015

Midstream PA 2015
October 1, 2015
Penn State

WV Oil and Gas Expo
October 7, 2015
Morgantown, WV.

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

  • Shell hits another big Utica well.  Shell’s Lopatofsky 23H had a volume of 424,589.49 in only 8 days of production.  That’s 53 million a day. (RUMOR)
  • Rex Energy.  It is starting to drill a well in Carroll County, OH.  (RUMOR)
  • Exporting crude to Mexico.  Last week, we provide information about the upcoming debate in congress regarding exporting U.S. crude.  The government approved sending crude to Mexico.  Here’s the info from CNBC.

The Obama administration will allow limited sales of U.S. crude to Mexico for the first time, a senior administration official told Reuters, marking another milestone in loosening a contentious ban on exporting domestic oil.

The Commerce Department is "acting favorably on a number of applications" to export U.S. crude in exchange for imported Mexican oil, the official said. Such oil swaps are one of several possible exemptions allowed in the four-decade-old law that otherwise bans most overseas shipments.

The approvals come eight months after Mexico formally sought permission for a swap, a historic step for a nation where oil self-sufficiency has long been a source of pride. The shipments, likely to be lighter, high-quality shale oil, will help Mexico's aging refineries produce more premium fuels. U.S. refiners will continue to get Mexican heavy oil, a better match for them than the deluge of light oil coming from Texas and North Dakota.

The licenses, good for one year, will be formally issued by the end of August, the official said. He declined to offer further details on volumes, saying only that the number of approvals was "a handful."

  • It’s not looking good for Aubrey and Ascent Resources.  (Bloomberg Business article)  For Aubrey McClendon, it was the perfect time to tap debt markets: He had parted ways with Chesapeake Energy Corp., energy prices were climbing, and high-yield investors were willing to lend to just about anyone.

    That was just over a year ago. A few months after the shale pioneer piled on borrowings to fund his fledgling new empire at American Energy Partners, a plunge in oil and gas prices shattered McClendon’s plans to cut debt through growth, leaving investors in the lurch. A secured loan sold by one of his ventures in the Marcellus shale region has cratered to about 32 cents on the dollar.

    Now, rock-bottom energy prices are making some fields unprofitable to drill, eroding cash needed to service debt and fund future exploration, and giving little hope for McClendon’s investors to recoup losses.

    “They took on a lot of debt last year with plans to grow at pretty astronomical rates,” said Carin Dehne-Kiley, an analyst with Standard & Poor’s. “With the commodity price downturn, those plans have changed but they still have that debt.”

    In January, the Marcellus business along with a unit focused on the neighboring Utica shale region were spun off as Ascent Resources with McClendon as one of the principal owners. The other main investors include Energy & Minerals Group and First Reserve Corp. -- the same private-equity firms that bankrolled American Energy Partners.

    The Marcellus business, which raised $1.2 billion in loans last June, has an unsustainable capital structure and will struggle with weak liquidity and limited cash-flow generation in a low commodity-price environment, John Thieroff, an analyst at Moody’s Investors Service, wrote in a report last week.

    The New York-based ratings firm cut the company’s credit ranking to Caa2. That’s a level that indicates “very high” credit risk and poor standing, according to ratings definitions. The borrowings include $750 million of first-lien loans that are trading at 65.5 cents and a second-lien loan trading at less than half that price. These levels on secured borrowings are associated with companies in deep distress and not those expected to repay their creditors in full.

    The 16 percent price decline on the first-lien loan this quarter compares with a 7.5 percent loss for debt in Credit Suisse Group AG’s leveraged loan energy index.

    Jennifer Grigsby, Ascent’s chief financial officer, didn’t return an e-mail or calls seeking comment. Charlie Rexford, a spokesman for American Energy Partners at Brunswick Group, declined to comment.

    It wasn’t supposed to play out like this. Buoyed by rising energy prices and faced with shriveling returns wrought by the Federal Reserve’s near-zero rate policy, investors were searching for returns in the riskiest portions of the debt market. That meant lending to highly leveraged companies, such as American Energy, which promised to pare indebtedness through increased production.

    Instead, Ascent has been slow to wring any gas out of the 48,000 acres of drilling rights it acquired a year ago in the Marcellus Shale beneath West Virginia for $1.28 billion.

    In the five counties where those drilling rights are located, the company has only applied for permits in one -- Wetzel County. The state’s Department of Environmental Protection granted permission in June to drill 16 wells in the county.

    No data is available yet on whether those wells were successfully finished or have commenced regular production; operators in West Virginia are not required to divulge output data for 2015 until March 31, 2016.

    Moody’s anticipates 2015 and 2016 production to be only one-third of what was initially expected in July 2014, leading to very weak cash flow generation, Thieroff wrote in the report.

    Prices for Marcellus shale gas have plunged as drillers added new supplies faster than pipelines could be built to ship the fuel to urban markets from New England to the Deep South. Marcellus output increased more than fivefold in the past half-decade, elevating the shale formation that underlies much of Appalachia and the mid-Atlantic region to the largest single source of gas in the continental U.S., according to Bloomberg Intelligence.

    U.S. gas prices have slumped 65 percent in the past seven years. Explorers have been curtailing drilling in the Marcellus as the glut-driven price collapse made many gas wells unprofitable, and shifting investment to other shale regions such as the Bakken or Utica, which are richer in higher-profit commodities such as crude or ethane. The number of rigs searching for gas in the Marcellus tumbled to 55 this month from an all-time peak of 140 in January 2012.

    “Production growth from projected spending is necessary to generate sustaining cash flow over the longer term,” Thieroff at Moody’s wrote in the report. The negative outlook reflects the high degree of uncertainty around Ascent’s ability to shore up liquidity and the risk of further credit deterioration, he said.
  • With problems in the U.S. Aubrey goes to Australia.  American Energy Partners' (AEP) CEO Aubrey McClendon is negotiating a $100 million acquisition of Australian drilling rights that marks the first time the ex-Chesapeake executive is venturing overseas.

    AEP has signed a letter of intent and a three-month exclusivity agreement with Australia's Armour Energy to buy a 75% stake in 21.5 million acres of drilling rights, Armour said in a Thursday statement.
  • Warren getting encouraging results in the Marcellus.  Warren Resources, Inc. announced initial results from its well completion operations in the Upper Marcellus formation, located within its acreage block in Wyoming County, Pennsylvania.

    Warren successfully drilled and set pipe for two Upper Marcellus wells in the first quarter of 2015, and completion operations commenced in July 2015. The two Upper Marcellus wells have been flowing back for approximately two weeks and the current combined daily production rate is 17 MMcf per day with 3% of flowback load recovered. The wells are drilled from Warren's Mirabelli and Ruark pads.

    Lance Peterson, Interim CEO, commented, "Warren's first two Upper Marcellus wells were drilled with the intent to test a wide swath of our acreage block. Warren is very encouraged by the early results from these wells, and we expect to see these wells continue to clean up and experience increased flow rates. Our 'core of the core' acreage position in the Marcellus continues to provide significant growth opportunities for the Company and deliver value for Warren's shareholders. I congratulate the team and all Warren employees for their hard work and commitment to the Company."

    A successful test of the Upper Marcellus could potentially add over 40 additional well locations on Warren's acreage block. No reserves were booked at year end 2014 for the Upper Marcellus locations.

    In addition, Warren has the advantage of having pipeline infrastructure and pads already in place to support the drilling of additional wells in the Upper Marcellus, thereby eliminating time consuming infrastructure projects, and providing economic returns at lower realized gas prices.

    Warren adhered to its strategy of driving operational efficiencies, with drilling costs for the two Upper Marcellus wells coming in 5% under budget and completion operations coming in 10% under budget.   The Company sees an opportunity to reduce drilling and completion costs by 15% for future locations while maintaining exceptionally low lease operating expenses in the range of $0.75 per Mcf, including gathering and transportation costs.
  • Another possible downstream project in the Utica or Marcellus.  Intrexon Corporation, a leader in synthetic biology, today announced that Intrexon Energy Partners (IEP), and Dominion Energy, a subsidiary of Dominion Resources have entered into an agreement to explore the potential for commercial-scale biological conversion of natural gas to isobutanol, a drop-in fuel with numerous advantages over other clean burning gasoline blendstocks.
  • Antero building $275 million facility in WV.  Oil and gas independent Antero Resources has contracted with Veolia Water Technologies to design-build a $275 million wastewater treatment complex in Doddridge County, West Virginia.

    The complex includes a 60,000 barrel per day (BPD) facility that will allow Antero to treat and reuse flowback and produced water rather than permanently dispose of the water via injection wells, Kallanish understands.

    Antero will own the treatment assets including ancillary facilities. The complex will be centrally located in Antero's footprint in the southwestern core of the Marcellus Shale play with the ability to serve the company's development in both the Marcellus and Utica Shale plays.

    One of the largest players in the Marcellus and Utica, Antero owns roughly 410,000 acres in the Marcellus in northern West Virginia/southwesten Pennsylvania. In the Utica, Antero owns more than 149,000 acres in eastern Ohio.

    "Our concentrated acreage position in the core of the Marcellus and Utica Shale plays has enabled Antero to build the largest freshwater delivery pipeline system in the industry, and we will now build the largest advanced wastewater treatment complex in Appalachia,” said Paul Rady, Antero’s CEO.

    Veolia will design, build, operate and maintain the wastewater treatment complex under a turnkey contract.  “This project shows environmental stewardship can result in economic advantages, while maintaining high standards for social responsibility using unique technologies and operational services that provide a reliable and sustainable solution for flowback and produced water treatment," said Klaus Andersen, CEO of Veolia Water Technologies.

    Antero projects the complex will save the company roughly $150,000 per well on future completion costs when it comes online at the end of 2017.
  • Tapping into municipal waste water.  Top shale oil producer Pioneer Natural Resources Co has found an unusual way to both save water and cut costs for its wells: tapping the treated runoff from toilets, sinks and showers in west Texas.

    Pioneer has signed an 11-year, $117 million deal with the city of Odessa, Texas that will guarantee it access to millions of gallons of treated municipal wastewater each day, for use in nearby oilfields. Deliveries of the so-called effluent are expected to start at the end of the year.

    As crude oil has slid to its lowest level in six years – currently about $40 a barrel – oil and gas companies pumping from shale rock have tried to cut every unnecessary penny from their operations. Water acquisition and transportation can be up to 10 percent of the cost of drilling and fracking a well, according to consulting firm IHS.

    Producers are also trying to mitigate long-term risks of water scarcity in the arid Permian Basin of West Texas, where the top U.S. oilfield is situated.

    Oil and gas companies operating in area, including Pioneer and Apache Corp, have long sought cheaper; more environmentally sound sources of water to use for fracking.

    For example, both companies have drawn some of the water they use in their operations from the Permian’s brackish aquifers, which contain water unfit for drinking. Both companies also have worked to recycle water that is used for frack jobs or found in the ground while drilling.
  • Thank you, Mr. President and EPA.  The U.S. Environmental Protection Agency proposed the first-ever federal regulations to cut methane emissions from the nation’s oil and natural gas industry.

    The EPA-proposed regulations are designed to cut methane emissions from O&G by 40% to 45% over the next decade, from 2012 levels. That was the goal the agency said earlier this year it would pursue when it first unveiled its plans, Kallanish finds.

    The regulations are part of a broader regulatory agenda President Obama is pursuing. Earlier this month, the EPA issued final regs cutting carbon emissions from power plants 32% by 2030, based on emissions levels in 2005.

    “Today, through our cost-effective proposed standards, we are underscoring our commitment to reducing the pollution fueling climate change and protecting public health while supporting responsible energy development, transparency and accountability,” said EPA Administrator Gina McCarthy.

    The proposed standards for new and modified sources are expected to reduce 340,000 to 400,000 short tons of methane in 2025, the equivalent of reducing 7.7 to 9 million metric tons of carbon dioxide. EPA estimates the rule will yield net climate benefits of $120 to $150 million in 2025.

    The plan is drawing howls from industry trade groups and some energy companies who argue new regulations will require the installation of costly mitigation systems, as low oil prices crush profit industrywide.

    Since 2005, domestic oil production has nearly doubled and natural gas production has risen roughly 50%, according to the U.S. Energy Information Administration, yet methane emissions from O&G industry have dropped roughly 15%, according to EPA data.

    "Another day, and another job-killing rule rolls off EPA's regulatory assembly line," said Christopher Guith, senior vice president for policy at the U.S. Chamber's Institute for 21st Century Energy. "Additional regulations on methane by EPA and other agencies are a solution in search of a problem, and only add to the difficult market conditions that are already hampering the sector.   

    Companies will be required to install technology that prevents methane from being inadvertently leaked and to monitor their operations for possible leaks. Many companies are already using this kind of equipment, according to industry executives and the EPA.

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

Rig Count

  • Baker Hughes Rigs count for the week August 21, 2015
  • PA
    • Marcellus 35 unchanged
    • Utica 1 down 2
  • Ohio
    • Utica 19 unchanged
  • WV
    • Marcellus 17 down 1
  • TX
    • Eagle Ford – 99 down 2
    • Permian Basin  204 down 2
  • NM
    • Permian Basin – 49 unchanged
  • ND
    • Williston – 72 up 3
  • MT
    • Williston – 1 unchanged
  • CO
    • Niobrara –29 down 1
  • TOTAL U.S. Rig Count 885 up 1

PA Permits for August 13, to August 20 2015

No permits this week. 

OH Permits – week ending August 13, 2015

      County                Township               E&P Companies

1.    Monroe                Salem                    Eclipse Resources
2.    Monroe                Salem                    Eclipse Resources
3.    Monroe                Salem                    Eclipse Resources
4.    Monroe                Salem                    Eclipse Resources
5.    Monroe                Salem                    Eclipse Resources
6.    Monroe                Salem                    Eclipse Resources

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Utica Summit 2019