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Expo/Industry events for the next few months

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

PIOGA 2015 Eastern Oil and Gas
Conference and Trade Show

Winter Safety Seminar
November 4, 2015
Williamsport Country Club
Williamsport, PA

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

  • Nat Gas Storage Going Up.  If you live in the Lower 48 States, don’t worry about insufficient natural gas in storage for this winter – regardless of how cold and blustery months might be.

    Storage for the winter of 2015-2016 could easily set a record – topping 4 trillion cubic feet for the first time ever, analysts with analytics firm Genscape portend.

    Despite the real possibility of breaking the 4 Tcf barrier, producers in the Marcellus-Utica Shale plays and the Permian Basin could make the winter of 15-16 one to remember in terms of production volatility.

    The swing in production in just those two areas could be as much as 2 billion cubic feet per day (Bcf/d) – on a day-to-day basis Kallanish Energy understands.

    Randall Collum and Rick Margolin, managing director, Supply Analytics and senior analyst, Natural Gas, respectively, with Genscape addressed via Webinar what the winter of 2015-2016 holds for the U.S.

    Certainly, gas inventory by the end of the injection season on Oct. 31, should be one for the record books. Since 2002, the closest working gas in storage came to 4 Tcf was in early November 2012, when 3.93 Tcf was in storage.

    We commented on this in last week’s newsletter.  It looks like it’s going to be a challenging year for natural gas.
  • Utica Summit III Highlights
    • West Texas Intermediate (WTI) crude oil will rebound to $67 a barrel, from the current $46/Bbl within 12 months, UBS Financial Services executive director-Equity Sector Strategist Nicole Decker said Tuesday.

      Speaking at Utica Summit III at Kent State University at Stark in northeast Ohio, Decker said she’s optimistic concerning the WTI price because “demand is rising, and supply-demand has started to balance. And we see U.S. production soon dropping to below year-ago numbers.”

      Decker addressed breakeven prices around the U.S., but particularly in Organization of Petroleum Exporting Countries, saying there’s a different mindset when OPEC members look at breakeven crude prices.

      “For OPEC countries, it’s not the cost of production that matters, it’s what price is needed to balance budgets,” according to Decker.

      Even with Brent crude (the world’s benchmark, excluding the U.S.) at roughly $50/Bbl, every OPEC nation is losing money on a per barrel basis, ranging from Kuwait, which breaks-even at a bit under $60/Bbl, to Venezuela, which needs $160/Bbl.

      By comparison, in the U.S., the breakeven per barrel price in the Eagle Ford Shale in South Texas is under $40/Bbl, and $60 in North Dakota’s Bakken, Decker said.

      “The longer oil remains low, the greater risk of a geopolitical situation of some kind happening,” according to Decker.

      On the natural gas side, the domestic breakeven price to drill is lowest in Northeast Pennsylvania, at $2.10/Mcf, with the Utica and Cana Woodford not far behind at $2.50/Mcf, and the wet Marcellus at $2.80/Mcf. The November futures price is roughly $2.50/Mcf, according to CME Group data.

      Utica Summit III was presented by, the Canton Regional Chamber of Commerce and the Canton Repository newspaper.
    • I asked Decker what she thought the price of oil would be if there is a “blowup” in the Middle East and oil production is disrupted.  She said that the price of oil would probably go to $120 for a short period of time.
  • Utica Is Bigger Than Many Thought.  The Utica Shale play could hold far more oil and gas than previously estimated, the US Department of Energy’s Fossil Energy Office (FOE) said this week.

    If the play’s commercial potential could be realized, it could be, geographically, the nation’s largest gas field, Kallanish Energy understands.

    FOE said the two-year study, which West Virginia University led with financial support from DOE’s National Energy Technology Laboratories (NETL) and 14 industry members of the Utica Shale Appalachian Basin Exploration Consortium, estimates the Utica holds technically recoverable volumes of nearly 2 billion barrels (BBbls) of crude oil and 782 trillion cubic feet (Tcf) of gas.

    The results, which build upon previous estimates, far exceed the US Geological Survey’s 2012 assessment and highlight new potential for the Utica shale, FOE said.

    “The Utica has been recognized as a significant oil and gas resource with the potential to out-produce the Marcellus due to its thickness and extensive geographic reach,” FOE said. “Until now, [its] impact has largely been unknown due to the limited amount of publicly available information.”

    FOE said the consortium’s research team was made up of personnel from the Kentucky Geological Survey, the Ohio Geological Survey, the Pennsylvania Geological Survey, the West Virginia Geological and Economic Survey, USGS, Smith Stratigraphic, Indiana University, Washington University in St. Louis, Missouri, WVU, and NETL.

    The study’s financial sponsors, in addition to NETL, included Anadarko Petroleum, Chevron, CNX, ConocoPhillips, Devon Energy, EnerVest, EOG Resources, EQT, Hess, Range Resources, Seneca Resources, Royal Dutch Shell, Southwestern Energy, and Tracker Resource Development.
  • An Unusual August Drop in Production in the Bakken.  North Dakota produced nearly 1.19 million barrels per day (MMBPD) in August – the first time in 12 years North Dakota reported an August crude production drop.

    August’s production (the most recent month available) was down 20,552 BPD from July, according to preliminary numbers from the state Department of Mineral Resources.

    "It is definitely not normal. August is almost always an up month," Lynn Helms, director of the Department of Mineral Resources, said Tuesday. "This is a reflection of what's really happening in the industry in this prolonged low-price environment."

    Low oil prices continue to prompt companies to leave oil in the ground until prices recover, Helms added.

    The state had a record 993 wells drilled but waiting on hydraulic fracturing crews at the end of August, up 79 wells from July, Kallanish Energy finds.

    Companies also continue to cut back on drilling. The state had 67 drilling rigs operating Tuesday, the lowest since November 2009 and down from 191 a year ago. Helms said the rig count could go as low as 60.

    Companies also voluntarily reduced oil production in August by an estimated 10,000 barrels per day (BPD) in order to comply with state flaring goals, according to Helms.

    North Dakota's state budget is based on a production rate of about 1.1 million barrels per day (MMBPD). Helms said he anticipates a continued decline in production, down to 1.1 MMBPD by the end of 2017.

    If prices drop more, production could get closer to 1 MMBPD by the end of ‘17, Helms said.

    North Dakota natural gas production fell 1% in August, to an average of 1.6 billion cubic feet per day (Bcf/d) compared to July’s total.
  • PA, OH and WV Form Shale Pact.  Representatives of the Appalachian Basin states Pennsylvania, Ohio and West Virginia on Tuesday entered into a three-year cooperation agreement to collaborate on areas deemed critical to maximizing economic growth in the shale gas region.

    The pact was signed at the so-called Tri-State Shale Summit in Morgantown, West Virginia, Kallanish Energy reports.

    “The issues and opportunities facing our growing oil and gas industry do not recognize state lines, making it essential we work together to help ensure the continued growth we expect to see,” said Ohio Lt. Governor Mary Taylor, who represented her state and signed the agreement.

    “We are seeing tremendous and continued growth in this industry and we know that can be strengthened by partnering on key areas.”

    “The development of West Virginia’s natural gas industry, although still in its infancy, has the potential to be a game changer not only in West Virginia, but for the Tri-State region,” West Virginia Governor Earl Ray Tomblin said.

    As part of the new cooperation agreement, the three states will discuss ways to cooperate in marketing efforts to attract new businesses, strengthen workforce development programs, spur investments in expanding infrastructure and delivery of natural gas and liquids, and encourage their academic institutions to expand and collaborate on research.

    "We must work together to ensure our region has the skilled workforce necessary to fill jobs and attract new employers," Pennsylvania Governor Tom Wolf said. "The demand for workers by the energy industry and off-shoot industries, especially manufacturing, is high and still growing.”  

    “The Allegheny Conference on Community Development, Team NorthEast Ohio and Vision Shared in West Virginia congratulate Governor Tomblin, Governor Wolf and Lt. Governor Taylor on signing this unprecedented memorandum of understanding,” the development groups that will be the point organizations under the pact said, in a joint statement. “This is a critical step toward demonstrating our Tri-State region is ready, willing and able to make downstream-related business investment a win-win for the region and for the firms -- large and small -- that have operations in the new global petrochemical center that is the Appalachian Basin.”

    Does this mean Governor Wolf will stop trying to drive oil and gas companies out of PA with higher taxes and needless regulations?
  • Antero Does Deal with Japanese Trader; Increases Production Projections. Independent producer Antero Resources buried in Tuesday’s its third-quarter operations update the fact it’s executed a 10-year agreement to sell 70 million cubic feet per day (MMcf/d) of natural gas to Japan-based Chubu US Gas Trading.

    The subsidiary of Chubu Electric Power will receive shipments from the Freeport (Texas) LNG Terminal. Antero will begin shipping volumes once the facility is placed into commercial service, which is expected at year-end 2018/early 2019.

    Antero will receive NYMEX-based pricing and deliver gas from the Sherwood processing plant utilizing existing firm transportation on the Columbia Gulf Transmission Pipeline, Kallanish Energy understands.

    Looking at operations, Antero, acknowledged as one of the top players in the Appalachian Basin, said it believes the company can achieve year-over-year growth of 25% to 30% in 2016.

    The huge jump is planned on top of the company’s third-quarter production record, averaging 1,506 million cubic feet-equivalent per day (MMcfe/d) -- above its full year guidance of 1,400 MMcfe/d, which estimated 40% growth compared to 2014.

    “We feel confident in our preliminary 2016 growth targets given our large inventory of drilled but uncompleted wells, as well as our industry-leading hedge book, which locks in virtually all targeted 2016 production at an average all-in hedged price of $3.94 per MMBtu,” said Paul Rady, CEO of Denver, Colorado-based Antero.

    Antero currently is running nine rigs in the Appalachian Basin, with four in the Utica and five in the Marcellus. The Utica, however, received the bulk of operations in the third quarter, hosting 25 of the 31 drilled and completed wells.

    The disparity is expected to level off in the fourth quarter, according to Antero, with the Marcellus and Utica receiving 11 and 12 new completed wells, respectively.
  • Horizontal Drilling Comes to Morrow County, OH in Central OH. Houston-based EOR Technology LLC plans to drill the well about 45 miles north of Columbus, the Galion Inquirer reports.

    EOR typically stands for enhanced oil recovery, which includes techniques to extract oil after much of it has already been drained.

    Central Ohio has always been home to drilling, but with traditional vertically drilled wells. Part of the reason the Utica shale in eastern Ohio is coveted by drilling companies is because it's now economically accessible to get the oil and gas in it via horizontal drilling and hydraulically fracturing, or fracking.

    Now that practice is coming to Central Ohio, in Canaan Township, about 150 miles from most Utica shale drilling activity in the state.

    The drilling permit is for 3,200 feet, a depth too shallow to tap the Utica shale, as Marcellus Drilling News points out. Instead, it's the Trempealeau formation, state records show, whose oil was coveted in the 1960s.

    The Morrow County well is under construction.
  • Even Yale University Says Fracking is OK. Environmental activists continue to claim that fracking (the use of horizontal drilling with high-pressure water) to unlock vast stores of natural gas and oil from shale formations contaminates drinking water. They hint that natural gas and the constituents of fracking fluids migrate through cracks from the shale formations into drinking water wells. In fact, intensive research efforts have yet to confirm that any contamination that has occurred in this way, including at the contested gas field in Pavilion, Wyoming.

    The Environmental Protection Agency released a draft report earlier this year that found that the minor amount of contamination that has occurred was the result of failed well casings and ground spills. The EPA reported that it "did not find that [fracking techniques] have led to widespread, systemic impacts on drinking water resources in the United States."

    A new report led by researchers from Yale University published in the Proceedings of the National Academy of Sciences has measured well water near fracked wells to see if they might be contaminated by methane and fracking fluids flowing upward from shale formations. What did the researchers find? No contamination due to fracking.

    The PNAS summary reports:

    Organic compounds found in drinking water aquifers above the Marcellus Shale and other shale plays could reflect natural geologic transport processes or contamination from anthropogenic activities, including enhanced natural gas production. Using analyses of organic compounds coupled with inorganic geochemical fingerprinting, estimates of groundwater residence time, and geospatial analyses of shale gas wells and disclosed safety violations, we determined that the dominant source of organic compounds to shallow aquifers was consistent with surface spills of disclosed chemical additives. There was no evidence of association with deeper brines or long-range migration of these compounds to the shallow aquifers (emphasis added). Encouragingly, drinking water sources affected by disclosed surface spills could be targeted for treatment and monitoring to protect public health.

    So how dangerous was the contamination caused by surface spills? Lead investigator Brian Drollette noted that all the chemicals detected in the samples occurred in small concentrations, so they are "likely not a threat to human health."
  • The Real Reason to Stop Fracking.  (Thank you, Marcellus Drilling News [MDN]) A Bloomberg article published yesterday perfectly captures what MDN has been saying now for at least five years: the real opposition to fracking and pipelines is not because of health concerns or environmental damage or any of a dozen or more surface arguments. Those issues are all weapons used in a public relations war–used to confuse casual news consumers who don’t bother to read or listen to more than headlines. The real reason–the core reason–why people oppose fracking and pipelines and all the rest are because the disease of global warming belief has metastasized in their liberal brains, and they irrationally want to end the use of all fossil fuels. It’s in black and white, stated plainly, in the Bloomberg article. The article mentions the Marcellus and the Constitution pipeline. It also highlights the activities of serial protester and founder of FANG (Fighting Against Natural Gas), Nick Katkevich, someone we’ve reported on previously (see The Useful Idiots, and Evil Puppet Masters, Behind Radical FANG). In the Bloomberg article, Katkevich admits his true/sole purpose with his illegal protest activities is to stop the use of all fossil fuel.
  • It’s Getting Down to Crunch Time at Magnum Hunter.  (Thanks MDN) Sure looks to us like time has finally run out for Marcellus/Utica driller Magnum Hunter Resources (MHR). The company is now either shopping itself looking for a buyer, or preparing to file for bankruptcy. Our evidence? On Friday, MHR suspended monthly dividend payments on their stock and hired financial advisory firm PJT Partners and law firm Kirkland & Ellis to advise MHR’s board of directors “regarding potential strategic alternatives to enhance liquidity and address the Company’s current capital structure.” According to one analyst we’ve read, addressing a company’s capital structure is coded language for “we’re about to file for bankruptcy protection.” Here’s MHR’s recent history and the announcement from Friday, to provide more context.
  • Niobrara Oil Production Keeps Falling.  The EIA (U.S. Energy Information Administration) released its Drilling Productivity Report on October 13, 2015. The report estimates that the Niobrara Shale produced 409 thousand barrels of crude oil per day in September. This is ~4% less than production in August but 1% more than production a year ago.

    Month-over-month, Niobrara’s September crude oil production number represents the fifth consecutive fall. It was also the largest fall in monthly production in 2015.

    The Niobrara Shale oil production rose from ~126,000 bpd (barrels per day) in September 2007 to ~409,000 bpd in September 2015. This is a rise of 225% in eight years.

    In September, the Niobrara Shale’s natural gas production fell 49.6 MMcf (million cubic feet) per day compared to production in the previous month. This follows a 50.3 MMcf per day fall in August compared to July. Natural gas production at the Niobrara Shale rose from an average of ~3.67 Bcf (billion cubic feet) per day in 2007 to ~4.37 bcf per day in September. That’s ~19% growth.

    The recent production fall will hurt Niobrara Shale producers that may be behind this fall. This includes energy producers such as Noble Energy (NBL), Bonanza Creek Energy (BCEI), and Whiting Petroleum (WLL). OFS (oilfield service) companies that manufacture rigs and equipment and provide drilling services could also lose if drilling activity falls. Rig equipment makers and rig-related technology service providers include Schlumberger (SLB) and Halliburton (HAL).

    Noble Energy accounts for 1.5% of the Energy Select Sector SPDR ETF (XLE). Whiting Petroleum accounts for 0.3% of the iShares US Energy ETF (IYE).

    The number of rigs working at Niobrara fell by three to 42 in September compared to the previous month. A year ago, there were 105 drilling rigs in the region.

    The EIA calculates that the average Niobrara Shale rig added production of 589 bpd in September 2015, a 45% rise since September 2014. The additional production per rig rose by ~17x in the past eight years. The Niobrara Shale in Colorado and Wyoming was one of the fastest-growing oil-producing regions in the United States before the recent fall.

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

Rig Count

  • Baker Hughes Rig Count the week of October 16, 2015
  • PA
    • Marcellus 28 unchanged
    • Utica 1 unchanged
  • Ohio
    • Utica 19 unchanged
  • WV
    • Marcellus 18 unchanged
  • TX
    • Eagle Ford – 76 down 4
    • Permian Basin  194 up 2
  • NM
    • Permian Basin – 39 down 4
  • ND
    • Williston – 63 down 1
  • MT
    • Williston – 1 unchanged
  • CO
    • Niobrara – 25 unchanged
  • TOTAL U.S. Rig Count 754 down 9

PA Permits for October 1, to October 8, 2015

      County                  Township                   E&P Companies

1.    Washington            North Strabene            Range

OH Permits – week ending October 10, 2015

      County                 Township           E&P Companies

1.    Belmont                Richland              XTO
2.    Belmont                Wayne                Eclipse Resources
3.    Belmont                Wayne                Eclipse Resources
4.    Belmont                Wayne                Eclipse Resources
5.    Belmont                Wayne                Eclipse Resources
6.    Belmont                Wayne                Eclipse Resources
7.    Belmont                Wayne                Eclipse Resources
8.    Belmont                Washington         Gulfport
9.    Belmont                Washington         Gulfport
10.    Belmont                Washington       Gulfport
11.    Belmont                Washington        Gulfport
12.    Belmont                Washington        Gulfport
13.    Belmont                Washington        Gulfport
14.    Harrison                Nottingham         Ascent Resources
15.    Monroe                 Ohio                   Triad Hunter

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

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