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Expo/Industry events for the next few months

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

PIOGA 2015 Eastern Oil and Gas
Conference and Trade Show

Latest facts and a rumor from the Marcellus and Utica Shale

Midstream PA 2015 Highlights

We sold out our PA midstream event for the second year in a row.  We want to thank our speakers who provided current meaningful information to the attendees.  The attendees left this seminar probably knowing more about the midstream activity in PA than anyone else in the state.  The combination of industry and government at the event gave the attendees a look at what is happening now, but more importantly what is coming in 2016 and beyond.

Some of the more interesting remarks:

  • Everyone expects the big pipeline projects to continue with the only slowdown coming from acquiring permits.
  • Some of the smaller midstream projects may get pushed a little.
  • PA Pipeline Task Force’s comments:
    • The primary focus of the report will be on gathering lines.
    • The members of the task force are from the industry, business, government official from the state and local level and academia.
    • The first draft of the report is due November 2nd. With the complete report due on February 2016.
    • Businesses are encouraged to comment once the first draft is completed.  
    • It is not clear whether the report will result in now regulations or legislation, but you have to believe more regs are coming in some form.
  • The Sunoco Logistics Mariner projects 1, 2 and 2EX are moving forward and represent a $3 billion investment by Sunoco Logistics in PA.  To give you an idea of the size of these investments, it’s twice as large as the combination of the building of Heinz Field in Pittsburgh, Lincoln Financial Field in Philadelphia and the Comcast tower in Philadelphia.
  •  While much of the discussion of pipelines coming out of the Marcellus is about going to New England, Frank Nieto, Midstream Business magazine’s editor, commented that the biggest opportunities are in the Southeastern part of the U.S. where the population continues to grow and there is no opposition to pipelines.  There is considerable natural gas need as the power plants in this region of the country convert to natural gas from coal.  
  • Nieto’s also stated that there is considerable discussion about shipping LNG and NGL’s to Europe, but Mexico will be the biggest importer of natural gas from the U.S.  And it’s happening now.
  • The only rumor to come out of the seminar is that Shell is supposedly going to make “go or no go” decision on the cracker plant by the end of the year. (RUMOR)

From the different people that I talk to everyone seems to think the project will get the green light.  

  • Energy Transfer finally does the deal.  Energy Transfer Equity (ETE) persevered in its nine-month effort to acquire fellow pipeline giant Williams, with the buyer agreeing to pay $37.7 billion for control of pipelines and plants that handle roughly 33% of U.S. natural gas demand.

    Williams has canceled its May offer to buy all stock it doesn’t own in its affiliate, Williams Partners. The $43.50/share price represents a 4.6% premium to the Williams closing price on Sept. 25.

    The deal ends a nine-month gestation period fronted by Dallas billionaire Kelcy Warren that became public in June, when Williams rejected Energy Transfer’s first offer as too low, and began seeking other suitors for the company.

    Williams’ biggest asset, both literally and figuratively, is Transco, the largest U.S. gas pipeline system. It connects the Marcellus Shale/Appalachian Basin to populous U.S. markets. Williams has contracts underwriting at least $2.5 billion of expansion to Transco, according to the company’s May investor presentation. Its lines connect some Energy Transfer businesses.

    “Williams adds scale, complimentary assets that enhance services to producers, synergies and significant potential commercial growth opportunities,” Elvira Scotto, an analyst for RBC Capital Markets, wrote in a June 22 note to clients.

    The transaction ranks among the largest in the North American pipeline industry, which last year saw Kinder Morgan consolidate its partnership assets into one company through transactions with an enterprise value of more than $40 billion. Kinder Morgan’s market value is now about $67 billion.

    Energy Transfer Equity and Williams are poised to become one of the top-six largest U.S. energy companies. The two companies had a combined market value as of September 18 of more than $60 billion. Williams will pay a $428 million termination fee to the partnership, according to a statement.

    Energy Transfer announced June 21, it had offered $48 billion in stock for Williams. After rejecting the offer, Williams began taking bids in a process handled by Barclays and Lazard. Energy Transfer participated in the auction in July.

    Energy Transfer’s initial offer depended on Williams abandoning a consolidation of its partnership the company had announced in May. Williams had proposed buying the rest of Williams Partners LP units it doesn’t already own for $14 billion.
  • Halliburton identifies more business to be sold to make the deal happen. Halliburton Company (NYSE: HAL) and Baker Hughes Incorporated (NYSE: BHI) today announced that the companies will market for sale additional businesses in connection with Halliburton’s pending acquisition of Baker Hughes. Pursuant to the Merger Agreement, and in order to permit completion of Halliburton’s acquisition of Baker Hughes, the following additional businesses are intended to be divested: Halliburton’s expandable liner hangers business, which is part of the company’s Completion & Production Division; Baker Hughes’ core completions business, which includes: packers, flow control tools, subsurface safety systems, intelligent well systems, permanent monitoring, sand control tools and sand control screens; the Baker Hughes sand control business in the Gulf of Mexico, including two pressure pumping vessels; and Baker Hughes’ offshore cementing businesses in Australia, Brazil, the Gulf of Mexico, Norway, and the United Kingdom.

    The divestitures process for the previously announced divestitures of Halliburton’s Fixed Cutter and Roller Cone Drill Bits, Directional Drilling and Logging-While-Drilling (LWD)/Measurement-While-Drilling (MWD) businesses is continuing, and Halliburton is pleased that last Friday it received proposals from multiple interested parties for each business.

    The combined 2013 revenue associated with all of the businesses intended to be divested was approximately $5.2 billion. The sale of these businesses will be subject to the negotiation of acceptable terms and conditions for the divestitures, the approval of the divesting company’s Board of Directors, and final approval of the Baker Hughes acquisition by competition enforcement authorities. Halliburton anticipates that the companies will complete the sales of these businesses in the same timeframe as, and the closing of the divestitures would be conditioned on, the closing of the pending Baker Hughes acquisition.

    There is no agreement to date with any competition enforcement authority as to the adequacy of the proposed divestitures. The companies will continue to work constructively with all competition enforcement authorities that have expressed an interest in the proposed transaction. The pending acquisition has received unconditional regulatory clearances in Canada, Kazakhstan, South Africa, and Turkey.

    Halliburton and Baker Hughes have also amended their timing agreement with the Antitrust Division of the U.S. Department of Justice (DOJ) to extend the earliest closing date by three weeks, to the later of Dec. 15, 2015 (from the current date of Nov. 25, 2015) or 30 days following the date on which both companies have certified final, substantial compliance with the DOJ second request. Timing agreements are often entered into in connection with large, complex transactions, and provide the DOJ additional time to review responses to its second requests. In light of the timing agreement, Halliburton and Baker Hughes have agreed to extend the time period for closing of the acquisition pursuant to the Merger Agreement to no later than Dec. 16, 2015. The Merger Agreement also provides that the closing can be extended into 2016, if necessary.
  • Shell terminates Artic exploration.  "This is a clearly disappointing exploration outcome...", Shell's upstream head in the Americas said Monday regarding the Anglo-Dutch major's decision to cease drilling in the Arctic "for the foreseeable future" after the Burger J well in the Chukchi Sea yielded disappointing results. Shell’s decision could mark the end of Arctic O&G exploration for some time.

    Shell said the decision to abandon the $7 billion exploration project also reflected the “challenging and unpredictable” regulatory environment and the high costs of the project. Shell said the Burger J well will now be sealed and abandoned.

    Moves like this make the Beaver County, PA cracker more viable.
  • Saudis feeling the squeeze of lower oil prices.  Saudi Arabia has withdrawn tens of billions of dollars from global asset managers in recent months in an effort to cut its massive deficit caused by falling oil prices over the past year, Financial Times reported Sunday. The country's banks are borrowing in the bonds and loans market because of the cash squeeze.

    Nigel Sillitoe, chief executive of financial services market intelligence company Insight Discovery, told FT that fund managers estimate the Saudi Arabia Monetary Agency has pulled out between $50 billion and $70 billion over the past six months.
  • Hess is lean in the Bakken and Utica.  WTI has been hovering around $45 for the past month, layoffs continue and with no real sign of bottom E&P operators continue to tighten their belt and find ways to outlast the downturn. Hess Corporation (NYSE: HES) is a leading exploration and production company with operations around the world in places like North America, Africa, and Europe. The focus of this article will be on their North American Shale operations focused in the Bakken and Utica plays.

    Hess is expected to spend $4.4 billion in 2015 with $1.4 billion being spent in the Bakken and $240 million in the Utica. Through the first two quarters of 2015 $765 million has been spent of the Bakken budget and $190 million has been spent on other onshore areas totaling $955 million for U.S. onshore spending. Hess anticipates running 8 rigs in the Bakken and have ran 2 rigs in the Utica during the first half of the year.

    Production in the Bakken has averaged 114 MBoe/d during the first half of the year which is above the guidance range of 105 to 110 MBoe/d that they have forecasted for 2015.

    The name of the game during this downturn has been who can reduce well costs to fit current commodity prices. Hass has improved well costs in the Bakken by dropping ~24% from one year ago to around $5.6 million per well, having a $3.5 million drilling cost and a $2.1 million completion cost, this is an improvement over the first quarter which had well costs of around $6.8 million.

    In the Utica Hess is taking advantage of the lean manufacturing techniques used in the Bakken and implementing them to reduce costs in the play. In 2015 they have reduced drilling costs to $354 per foot from $381 in 2014 and completion costs to $122,000 per stage from $177,000 per stage last year. Well costs in 2015 are around $9.7 million down from $13.7 million in 2014. Production costs for the full year are targeted at $44.50 to $46.50 per barrel of oil equivalent.

    Hess has been predominantly using a hybrid slick water completion design for all of their frac jobs in the Bakken and using a slick water design for in the Utica while using all raw sand. In the Bakken they average about 1.3K tons of raw sand used per job with 1,872K gallons of water on average having an average of 36 stages per well in 2015. In the Utica they have focused their completion activity in Harrison county using an average of 4.84K tons of raw sand per job with 12,074K gallons of water per job with an average of 37 stages and an average lateral of 6,836 feet.

    The price of crude oil has halved in the past year and now stands at about $50 a barrel. The slump in oil prices forced governments to fund spending through bond sales and to use cash accumulated during the boom.
  • Chesapeake cutting its workforce.  Following the layoffs, the oil and natural gas producer will still employ about 4,000 people, including about 2,500 in Oklahoma City.

    In a letter to Chesapeake employees, CEO Doug Lawler said “the current commodity price environment continues to be a challenge for our industry and for Chesapeake.”

    “Over the past year, we have taken significant actions in response to the low commodity prices by reducing our costs and decreasing our capital spending,” Lawler said. While the layoffs were “extremely difficult,” Lawler said they will enhance the long-term competitiveness and strength of Chesapeake.
  • Bush Outlines Energy Policy at Rice HQ.  An extended campaign approach that is long on policy — such as the energy plan he detailed Tuesday — could help Jeb Bush make his mark among Republican presidential candidates, analysts say.

    All Americans should embrace the country's energy revolution, Bush told a crowd of about 350 people assembled beneath a white tent during driving rain outside Rice Energy's offices in Cecil.

    His energy plan would stimulate job growth and higher wages, Bush said, and it augments his policy to reduce taxes over a decade, his push to roll back government regulations and his policies on health care and higher education coming next week.

    “The energy sector in our economy is probably the most value-added that exists, perhaps even more than information technology,” Bush said. “When people look at the economy, everybody marvels at Silicon Valley. And there is much to appreciate there; people are reinventing the wheel and creating prosperity.

    “But the oil and gas sector has been the economic driver, even though you have had an administration that has been trying to drive it down.”

    Bush's energy plan has four components — lifting restrictions on exports of oil and gas; approving the Keystone XL pipeline; reducing overregulation; and deferring to states willing to develop energy resources.
  • Citigroup Predicts Colder than Normal Winter.  Citigroup’s Robert Morris and team note that the investment bank’s meteorologist expects a “colder-than-normal winter” which would be good news for stocks like Chesapeake Energy(CHK), Southwestern Energy (SWN), Cabot Oil & Gas (COG), Eclipse Resources (ECR),Rice Energy (RICE), and Range Resources (RRC). They explain

    Citi’s Meteorologist recently issued his initial…winter weather outlook calling for a ~4% colder-than-normal upcoming winter, although this would be ~1% warmer than last winter. Notably, actual [Heating Degree Days, or HDDs,] last winter ended up being within <1% of Citi’s original winter weather forecast issued at this same time one year ago. However, the National Oceanic and Atmospheric Administration is calling for a warmer-than-normal first half to the winter, including in the greater population-weighted demand Northeast region, counter to Citi’s forecast. Nonetheless, we estimate every 1% deviation from normal during the winter (November-March) equates to ~50 Bcf of incremental natural gas heating demand, all else being equal and apart from relative price-driven variations in coal-to-gas switching. Our current 2016 composite spot natural gas price forecast of $3.00/MMBtu (Citi’s official forecast is the Commodities Team’s $3.00/MMBtu Henry Hub forecast) is based on the assumption of normal weather going forward. But as we outlined in our recent Summer Wrap-Up note, a 4% colder-than-normal winter, all else being equal, would lift our 2016 composite spot forecast to $3.20/MMBtu. Notably, a colder-than-normal winter would likely bolster momentum for the more natural gas-leveraged E&P stocks including Chesapeake Energy, Southwestern Energy, Cabot Oil & Gas, Eclipse Resources, Rice Energy, and Range Resources. But we would also point out that Citi’s outlook for much colder temperatures in the Northeast also carries the risk of negatively impacting Appalachian and Utica producers if well freeze-offs and operational disruptions occur, as has often happened in the past during periods of extreme cold or harsh weather.

    Shares of Chesapeake Energy have ticked up 0.2% to $7.59 at 2:10 p.m. today, while Southwestern Energy has declined 0.5% to $13.25, Cabot Oil & Gas has gained 2% to $24.06, Rice Energy has risen 1.9% to $18.00.
  • Stone Energy shuts in WV wells.  Stone Energy Corp., an independent oil and natural gas exploration and production company based in Louisiana, has shut-in its largest field in Appalachia, curtailing between 100 and 110 million cubic feet equivalent (MMcfe) per day of Marcellus Shale production.

    The company shut its Mary field in Wetzel County, West Virginia at the beginning of September, according to a Sept. 24 announcement, leaving about 25 Mmcfe per day producing from the Heather and Buddy fields in Appalachia.

    Despite exceeding projected production for the first two months of the third quarter, Stone said low commodity pricing, including negative differentials in the region, combined with fees for transportation, processing and gathering, have reduced the operating margins to an “unacceptable” level.  

    “Production for the quarter is now expected to be below the previously stated guidance range of 39-41 Mboe per day, or 234-246 Mmcfe per day, and is being revised to 37.5-38.5 Mboe per day, or 225-231 Mmcfe per day,” the company stated in the news release. “If the Mary field remains shut-in, the annual guidance of 42-44 Mboe per day, or 252-264 Mmcfe per day, will need to be adjusted to account for these curtailed volumes.

    “Given the low margins in Appalachia, the cash flow impact from the curtailed volumes is not expected to be material for the third quarter.”
  • Former EQT Exec becomes PA PUC Commissioner.  The Pennsylvania Senate unanimously confirmed a former EQT Corp. executive today as the state’s newest public utility commissioner.

    Andrew Place, formerly EQT’s corporate director for energy and environmental policy, was nominated for the five-member Public Utility Commission by Gov. Tom Wolf in May to replace James Cawley, whose term expired at the end of March.

    He was confirmed by the Senate with a vote of 48-0.

    Mr. Place had worked at Downtown-based EQT since 2011. For a time, he held a concurrent role as interim executive director at the Center for Sustainable Shale Development, a Pittsburgh-based partnership between oil and gas companies, foundations and environmental groups that sets performance standards for the industry that aim to surpass existing rules.

    Let’s hope the Governor Wolfe makes more appointments like this.
  • Ethane storage needed for cracker plants.  Whether it's PTT Global Chemical, Royal Dutch Shell, Odebrecht or another firm, a MarkWest Energy official believes any developer looking to spend billions for an ethane cracker in the Marcellus and Utica shale region should have plenty of fuel.

    During Wednesday's West Virginia Oil and Natural Gas Association conference at Oglebay Park, Greg S. Floerke, executive vice president and chief commercial officer for MarkWest said his firm processes about 75 percent of the "rich" natural gas drawn from the two formations in Ohio and West Virginia. This heavy natural gas stream contains ethane, propane, butane and other liquids, along with dry methane.

    "We can produce as much ethane as we need to produce," Floerke said.

    One of the pitfalls for an ethane cracker in the region, some industry leaders maintain, has been a concern over whether it can get a sustainable supply of the product. As PTT Global spends $100 million for engineering and design plans for the planned $5.7 billion ethane cracker in Belmont County, Shell keeps making moves toward a project in Beaver County, Pa., while Odebrecht maintains the option to build near Parkersburg. However, none of the proposed petrochemical complexes are, as yet, done deals.

    "The one thing we don't have that Mont Belvieu and Sarnia have is storage," Floerke said, explaining an ethane cracker likely would need to ensure a steady supply of fuel in the event a pipeline carrying ethane to the plant would fail.

    Because of ethane's volatility, Floerke said it is less common to see the product stored in above-ground tanks in comparison to propane and butane. He said a company can build tanks to hold ethane, but at significant cost. He said it is more common for ethane to be stored underground.

    However, Floerke said lack of underground storage should not discourage a company looking to build a cracker, adding this is only one of several factors a developer would consider.

    One of the producers for whom MarkWest processes gas is Denver-based Antero Resources. Antero Vice President Al Schopp said a local ethane cracker would help the industry.
  • Exporting crude getting a little closer.  The Senate Banking Committee passed legislation Thursday to lift the 40-year-old general ban on US oil exports. However, the prospects of the bill are uncertain in the full chamber, following the addition of a controversial amendment.

    The measure, sponsored by Democratic Senator Heidi Heitkamp from North Dakota, passed 13 to 9. Heitkamp was the only Democrat to vote for the bill.

    Republican Senator Pat Toomey of Pennsylvania added a controversial amendment to the legislation that requires Iran to compensate US victims of Iranian-supported terrorism. Some Democratic senators said that the amendment would imperil the future of the bill when taken up by the full Senate.

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

Rig Count – We could not access rig counts by shale play. 
The only rig count that we have is for the U.S. which is below.

  • Baker Hughes Rigs count for the week September 25, 2015
  • PA
    • Marcellus 32 unchanged
    • Utica 1 unchanged
  • Ohio
    • Utica 19 unchanged
  • WV
    • Marcellus 17 unchanged
  • TX
    • Eagle Ford – 85 down 3
    • Permian Basin  203 down 4
  • NM
    • Permian Basin – 47 up 1
  • ND
    • Williston – 66 down 1
  • MT
    • Williston – 1 unchanged
  • CO
    • Niobrara –27 unchanged
  • TOTAL U.S. Rig Count 809 down 29

PA Permits for September 24, to October 1, 2015

      County            Township                E&P Companies

1.    Beaver               Sewickley             PennEnergy
2.    Butler                Donegal                XTO
3.    Elk                    Jones                   Seneca
4.    Elk                    Jones                   Seneca
5.    Elk                    Jones                   Seneca
6.    Elk                    Jones                   Seneca
7.    Elk                    Jones                   Seneca
8.    Lycoming           Cogan House        SWN
9.    Lycoming           Cogan House        SWN
10.    Susquehanna    Great Bend           SWN
11.    Susquehanna    Great Bend           SWN
12.    Susquehanna    Great Bend           SWN
13.    Westmoreland   Derry                    WPX
14.    Wyoming          Forkston               SWN
15.    Wyoming          Meshoppen           Chesapeake

OH Permits – week ending September 26, 2015

       County            Township                E&P Companies

1.    Belmont                Wayne                Gulfport
2.    Belmont                Wayne                Gulfport
3.    Belmont                Wayne                Gulfport
4.    Belmont                York                    Gulfport
5.    Belmont                York                    Gulfport
6.    Belmont                York                    Gulfport
7.    Harrison                Nottingham           Ascent Resources

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Northeast Supply Enhancement