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Expo/Industry events for the next few months

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

2015 OOGA Technical Conference and Oilfield Expo
November 4-5, 2015
Pritchard Laughlin Civic Center
Cambridge, Ohio

Latest facts and a rumor from the Marcellus and Utica Shale

  • WV Oil & Gas Expo.  Congratulations to the folks at The Stick Company for delivering another good expo.  While the industry has slowed down, the exhibitors with whom I spoke at the Expo left pleased.  They had made a number of good contacts and left with leads, which is the goal of exhibiting.  
    The vibe here was the same as other expos – business is alright to good.  Many companies are diversified and do not have all their “eggs in the oil and gas basket.”  Businesses seems to believe that the industry will turn around and they are committed to following the industry and staying involved so when the turn comes they are ready to take advantage of it.  Again, everyone seems to think 2017 and 2018 could be boom years.
  • We’ve won the battle, but we have to win the war.  PA’s legislation convincingly voted down the governor’s budget proposal convincingly 127 – 73.  The budget had an unreasonable severance tax.  While we can feel good about this win, we must be vigilant.  The industry wants to pay its fair share of taxes, but not at levels that make it impossible to drill in PA.

    While low natural gas prices has depressed drilling in PA, many people feel the uncertain tax legislation has caused some companies to be very tentative in bringing in rigs and expanding drilling.

    We ask that each of you speak up to your legislators and support the industry in your local areas.
  • Where is the price of oil going? I have not commented on this lately so I thought I would share with you  the different perspectives:
    • Boone Pickens said on CNBC yesterday that his earlier prediction of oil being at $70 by the end of the year is in jeopardy.
    • Last week’s land rig count went below 800.  It was actually 779.  Some people think the rig count being below 800 means production will begin to decline and that’s one reason oil is back around $50.  Tied to this hypothesis is the idea that the FED did not raise in interest rates which weakened the dollar hence the rise in oil’s price.
    • Other experts think oil will hit $30 before it hits $80.
    • A thought I have.   With Russians in the Middle East, missiles flying everywhere this may keep the price volatile.  In fact Thursday, Russian missiles went into Iran.  Eventually, a major oil producing facility is going to have a major explosion which should drive up prices.
  • Natural Gas Pricing.  As you know natural gas pricing is around $2.50, it’s down from the $2.80 - $3.00 range.  Most of the decline is attributed to rising amounts of natural gas in storage which is at the highest levels in five years.

    The only cure for low prices is a very cold winter.  If you’ve been reading previous newsletters, the Farmers’ Almanac and the Citigroup they are predicting a colder than normal winter.

    Has anyone seen any black wooly caterpillars?
  • Quarterly Financial Reporting.  We have finished another quarter in financial reporting terms.  I’ll be anxious to see the quarterly financial reports for many of the oil and gas companies.  We may see some forward looking information regarding exploration budgets in 2016.  We’ll be sharing that relevant information in the upcoming weeks.
  • Changing Landscape of Drilling in PA in 2014.  A new DEP report says two local counties led much of the state in conventional or shallow well oil and gas production in 2014, while the region continued to lag behind others in newer Marcellus Shale activity.  

    The department's annual oil and gas report for 2014 has McKean County ranked third in the state in conventional well permits issued with 252 of a state total 1,269. Elk County ranked fifth with 61. Neither Potter nor Cameron County claimed any conventional well permits issued last year.

    As for conventional wells drilled, McKean County ranked second in the state with 214; nearly one-third of a state total 791 shallow wells drilled in 2014, while Elk County ranked fifth with 32 that year.

    But neither county ranked in the top ten for unconventional or Marcellus Shale gas wells drilled or permitted.

    While McKean, Cameron and Elk County were home to double-digit Marcellus Shale gas wells drilled and permitted in 2014, other Pennsylvania counties continued to climb well into the triple digits, led by Greene County with 255 unconventional wells drilled of a state total 1,372, Susquehanna County with 238 and Washington County with 229.

    In unconventional well permits issued, Bradford County led the state in 2014 with 540 of a total 3,203 permits issued, followed by Susquehanna County with 462 and Greene County with 458.

    Overall the number of unconventional wells drilled and permitted rose last year after peaking in 2011 and dropping in 2012.

    But sharp declines are expected with the release of DEP’s oil and gas report for the current calendar year, one which saw marked declines in Shale gas production due to a nationwide supply glut, lagging energy prices and a lack of available pipeline infrastructure.

    But the conventional or shallow well industry’s decline is expected to be even more pronounced.  

    Mark Cline of Cline Oil in Bradford, a fourth-generation conventional well producer, acknowledges that some of his counterparts left for the unconventional well industry at the height of the Marcellus Shale boom leading to a drop in shallow well production.

    But he also blames a lingering price slump and new regulations being eyed by the state for both classes of driller, ones he says the smaller conventional producers are unable to afford and fighting tooth and nail to prevent.

    Cline, who also serves as president of the Pennsylvania Independent Petroleum Producers (PIPP) and on the state’s Conventional Oil and Gas Advisory Committee, said he expects even greater declines in conventional production to be revealed for this year, citing only 133 conventional wells drilled in the state as of July.

    “We’re probably not going to hit 200 or 250 this year for the whole industry,” he said.

    “It’s terrible.”  

    Last year, 791 conventional wells were drilled in Pennsylvania, down from a 10-year high of 4,836 in 2007, DEP reports. Additionally, 1,269 conventional well permits were issued in 2014, down from a high of 8,234 in 2008, considered by many to be the beginning of Pennsylvania’s Marcellus Shale boom.

    Cline blames possible changes to Chapter 78 of Pennsylvania’s Oil and Gas Act for much of the decrease, saying many producers fear they won’t be able to afford the cost of compliance if the new rules are enacted.

    “Some of the bigger companies switched from conventional to unconventional production but most of it (the slowdown) is because since those regulations were proposed in 2012 a lot of people are waiting to see what happens,” Cline said.

    “They’re scared to death.”
  • Gulfport and Rice creates midstream JV.  Independent producers Rice Energy and Gulfport Energy said Thursday the companies are forming a joint venture to develop midstream assets to support Gulfport's dry gas Utica Shale development in eastern Ohio.

    Rice and Gulfport plan to invest roughly $520 million to develop gathering and compression assets and $120 million for water assets within the JV over the next six years.

    Initial construction of the system is expected to begin immediately and first deliveries are planned for mid-2016.

    “We are excited about furthering our midstream relationship with Gulfport across their position in the core of the Ohio Utica Shale,” said Daniel J. Rice IV, CEO of Rice.

    The JV will be supported by long-term, fee-based service agreements with Gulfport, Kallanish Energy understands. Rice will own 75% of the JV and be responsible for constructing and operating the JV's assets.

    “Gulfport has a strong history with Rice in the Utica Shale and we are excited to expand our relationship by creating further alignment with one of our midstream providers,” said Michael G. Moore, Gulfport’s CEO.

    Moore added the JV will enable Gulfport to leverage Rice’s expertise as a midstream services provider and will allow Gulfport to take part in the potential drop down strategies for the joint venture and its investments.

    The JV’s assets include a dry gas gathering system with capacity to gather over 1.75 billion cubic feet per day (Bcf/d) of natural gas consisting of roughly 165 miles of high and low pressure 12-inch to 30-inch gathering pipelines with multiple interconnections to interstate pipelines, including the Rockies Express, Energy Transfer’s Rover, TETCO and Dominion East Ohio.

    Also part of the JV is a fresh water distribution system designed to deliver fresh water to pads for completion activities.

    Under the terms of the agreement, Gulfport will own the remaining 25% of the JV and dedicate approximately 77,000 leasehold acres, including the acreage recently acquired in its Paloma Partners III and American Energy–Utica transactions.

    In addition, Gulfport will also contribute to the JV an existing 11-mile gas gathering pipeline and a 339.65 million cubic feet per day (MMcf/d) TETCO interconnect, which are both located in Monroe County, Ohio.

    Rice and Gulfport said they plan to pursue third-party gas gathering and water services opportunities within a 340,000-acre area of mutual interest that will cover portions of eastern Belmont County and Monroe County, Ohio.
  • Spending $69 Million Sure Seems the Shell Cracker Plant Is Getting Closer. Shell Chemicals said earlier this week it will pay $69 million of the $72 million cost to relocate a water source located on the site of the company's proposed ethane cracker plant, roughly 35 miles northwest of Pittsburgh, Pennsylvania.

    The company said the Center Township Water Authority will pick up the remaining $3 million of the project’s cost. The project will replace existing drinking wells and create a new water intake site and treatment facility for the authority.

    Shell could use the water facilities if it moves forward with the multi-billion-dollar cracker complex at the former Horsehead zinc plant in Potter Township, Beaver County. That amount would be less than 10% of the total water sold by the system, according to Ned Mitrovich, a water authority engineer.

    “Shell is pleased to reach a mutually beneficial agreement with the Center Township Water Authority on the relocation of its water supply source that is currently located on the company’s proposed petrochemical site in Beaver County, Pennsylvania,” Shell spokeswoman Kim Windon tells Kallanish Energy.

    Windon added a decision is yet to be made regarding the future of the proposed project, as preliminary site work continues.

    “The next step involves pre-construction activities to build a roll-on, roll-off dock facility near where the water supply source is currently located,” according to Windon.

    The dock will be used to deliver major pieces of equipment, should the plant be given a thumbs up.

    Shell is spending $80 million to remediate the area surrounding the site in preparation for the potential plant — a process that will take years to complete. Officials found high levels of lead and arsenic on the 300-acre property, according to a filing with the Pennsylvania Department of Environmental Protection.
  • OPEC’s President Arrested in London.  Nigeria's former oil minister and the current president of OPEC, Diezani Alison-Madueke, was arrested in London. The Nigerian newspaper Premium Times reported that the UK National Crimes Agency made the arrest Friday morning, alongside four other people who as of this writing have not been identified. On Monday, Nigeria confirmed her arrest on suspicion of money laundering and bribery.

    Presidential spokesman Garba Shehu told the AFP Monday, "Nigeria is aware of the arrest of the former petroleum minister in London on money laundering charges...The government has been informed and the DSS (Department of State Services) is collaborating with the relevant security agencies in the UK to handle the matter."

    Alison-Madueke was the West African country's OPEC minister under former president Goodluck Jonathan until May 2015. The Premium Times spoke to sources Friday who said she was arrested for offenses related to corruption, bribery and money laundering.

    You cannot make this stuff up.
  • Here’s Why Nat Gas Prices Are Declining.  Working natural gas in storage for the week ended Sept. 25, increased by nearly 3% week-over-week, rose nearly 15% from one year ago, and increased 4.5% over the five-year average, the U.S. Energy Information Administration reported last week.

    Total working gas in storage was 3.54 trillion cubic feet (Tcf), up 2.8% from 3.44 Tcf the previous week, Kallanish Energy learns.

    The most recent weekly total was up a strong 454 billion cubic feet (Bcf), or 14.7% from one year ago, and was up 152 Bcf, or 4.5% from the five-year average of 3.39 Tcf.
  • Crude shortage up.  Production down.  The U.S. Energy Information Administration (EIA) said Wednesday domestic commercial crude inventories last week increased by 3.1 million barrels (MMBbls), with the crude inventory totaling 461 MMBbls.

    The commercial crude inventory remains near levels not seen in early October in at least 80 years, Kallanish Energy finds.

    On Monday, the EIA in its latest Short-Term Energy Outlook estimated U.S. crude production fell by 120,000 barrels a day (BPD) month-over-month in September. For 2015, the EIA projects average daily U.S. production of 9.2 MMBbls, a figure that will fall to 8.9 MMBPD.

    Before the EIA report Wednesday morning, WTI (West Texas Intermediate) crude for November delivery traded up about 2.3% at roughly $49.65/Bbl. The WTI price fell to around $48.90/Bbl immediately following the report’s release. The 52-week range on WTI futures is $38.51/Bbl to $85.20/Bbl.

    For the past week, crude imports averaged 7.1 MMBPD, down by 486,000 BPD compared with the previous week. Refineries were running at 87.5% of capacity, with daily input of 15.6 MMBbls, roughly 403,000 BPD below the previous week’s average.

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Rig Count

  • Baker Hughes Rig Count the week of October 9, 2015
  • PA
    • Marcellus 28 down 1
    • Utica 1 unchanged
  • Ohio
    • Utica 19 down 1
  • WV
    • Marcellus 18 unchanged
  • TX
    • Eagle Ford – 80 down 2
    • Permian Basin  182 down 10
  • NM
    • Permian Basin – 43 unchanged
  • ND
    • Williston – 64 down 1
  • MT
    • Williston – 1 unchanged
  • CO
    • Niobrara – 25 up 1
  • TOTAL U.S. Rig Count 809 down 29

PA Permits for October 1, to October 8, 2015

       County                 Township            E&P Companies

1.    Bradford                 Overton                Chief
2.    Bradford                 Overton                Chief
3.    Bradford                 Overton                Chief
4.    Bradford                 Overton                Chief
5.    Bradford                 Overton                Chief
6.    Bradford                 Overton                Chief
7.    Bradford                 Overton                Chief
8.    Bradford                 Overton                Chief
9.    Cameron                Shippen                Samson Exploration
10.  Cameron                Shippen                Samson Exploration
11.  Cameron                Shippen                Samson Exploration
12.  Susquehanna         Gibson                 Cabot
13.  Susquehanna         Gibson                 Cabot
14.  Washington            Chartiers              Range
15.  Washington            Chartiers              Range
16.  Washington            North Bethlehem   Rice
17.  Washington            North Bethlehem   Rice
18.  Washington            North Bethlehem   Rice
19.  Washington            North Bethlehem   Rice
20.  Washington            North Bethlehem   Rice
21.  Wyoming                Mehoopany          Chesapeake
22.  Wyoming                Windham             Chesapeake

OH Permits – week ending October 3, 2015

       County               Township            E&P Companies

1.    Belmont               Pultney                XTO
2.    Belmont               Wayne                Gulfport
3.    Guernsey             Londonderry         Ascent Resources
4.    Guernsey             Londonderry         Ascent Resources
5.    Guernsey             Londonderry         Ascent Resources
6.    Monroe                Switzerland          Consol
7.    Monroe                Perry                   EM Energy
8.    Monroe                Perry                   EM Energy
9.    Monroe                Perry                   EM Energy
10.  Monroe                Perry                   EM Energy

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Northeast Supply Enhancement