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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

  • Halliburton’s call for 4th Qtr. and 1st Qtr. 2016.  (OilPro) Halliburton held a conference call with investors this morning. Halliburton executives pulled back the curtain and revealed some good insight on the oilfield service market and how they are managing through these tough times. We will have a full digest of takeaways published soon, but in this weekly rig count update, we are focusing on what Halliburton said about the outlook for US drilling trends this morning.

    Since August, weekly drilling updates have warned of a sharp drilling decline coming in November and December as E&P budgets run dry. Today, Halliburton provided the same warning. CEO David Lesar said that most operators have exhausted their 2015 budgets and will take extended breaks starting as early as Thanksgiving. "Activity levels could drop substantially in the last five weeks of the year," he said. "In my 22 years in this business, I've never seen a market where we've had less near-term visibility."

    Based on this comment from Halliburton and our own view, we now believe it is possible that the US rig count, which stands at 751 today, could approach the 600 level by year-end. That would be a level not seen in the US since the late-1990s. We expect to see a slow trickle of rigs hitting the sidelines into mid-November and then larger drilling declines in late-November and December.

    Looking ahead though, there is a silver lining. Because of this anticipated nose-dive, Halliburton thinks that 1Q16 could mark the bottom of the cycle. The bigger the drop-off in 4Q, the bigger the bounce will be in 1Q as new E&P budget dollars kick in. Lesar said: "The first quarter could end up being a mirror-image of the fourth quarter. We expect to see a slow ramp-up beginning in January and improving from there."

    Halliburton's call for a 1Q bottom is grounded in the fact that US producers operate with a "drill or die" mentality. Halliburton argues that whether or not plays breakeven may take a back seat to the Darwinian concept that operators must either drill or dismantle. Here's how Dave Lesar puts it:

    "I think there's actually a different way you need to think about the customer base in North America, especially the independent customer base. And that's essentially with the high decline curves that exist on these unconventional plays; they really are in drill or die mode. So if you go a year without drilling a well and your production starts to turn over, you're going to have to start drilling or else you're going to have to take your infrastructure apart that you've built up as a company. So I think that as we get to the end of the year, if these guys have money, they're going to drill it up, and that's just the fact of the matter. But I think that the real key is going to be the production declines you see and when these companies get to the point where they have to start drilling or they have to start dismantling their companies, and they're not going to want to do that."

    Drill or die means US production could defy play economics, a concept we've written about, saying the US E&Ps are better named the "grit squad" rather than the "swing producer."  The tough choice of drill or dismantle could buffer US oilfield activity against low oil prices next year as operators continue to spend (albeit at lower levels than in 2015) on drilling. But this "padding" may only delay the kind of real oil production response needed for the global oil market to heal.

    In the meantime, buckle up for a tough end to the year if your business is leveraged to the US onshore oilfield.
  • Pipelines going through PA.  Some of those projects include:
    • Williams Partners' 178-mile Atlantic Sunrise Pipeline will carry gas from northeastern Pennsylvania to markets in the Mid-Atlantic and southeastern states. The $3 billion pipeline is expected to be operational by July 2017.
    • The Mariner East I pipeline, which previously carried oil, was repurposed to carry gas products. It cost $2.5 billion to make the switch along the 350-mile Sunoco Logistics' pipeline.
    • The Mariner East II pipeline will also carry gas. The Sunoco Logistics' pipeline will cost $3 billion to build and will span 350 miles when complete. It is expected to be operational in late 2016 and will move along the same path as Mariner East I.
    • Columbia Pipeline Group's Mountaineer Xpress Pipeline will carry natural resources from southwestern Pennsylvania through parts of West Virginia and Ohio. The $2 billion, 165-mile pipeline will move gas through Columbia's existing infrastructure in Pennsylvania and connect with the Mountaineer Xpress in Ohio and West Virginia. It's expected to be in service on Nov. 1, 2018.
    • The $1 billion PennEast Pipeline will cover 114 miles in eastern Pennsylvania and New Jersey. Construction is slated to begin by Aug. 1, 2016, and it is expected to be in service by Nov. 1, 2017. The pipeline is a partnership among AGL Resources, NJR Pipeline Company, Public Service Enterprise Group, SJI Midstream, Spectra Energy Partners and UGI Energy Services.
    • The 124-mile Constitution Pipeline will move from Susquehanna County into parts of New York. The $700 million project is the result of a partnership among Williams Partners, Cabot Oil & Gas, Piedmont Natural Gas and WGL Holdings. It is expected to be operational in late 2016.
    • The Leidy Southeast Expansion Project is an addition to Williams' Transco Pipeline. The 30-mile series of loops will move through Columbia, Luzerne, Lycoming and Monroe counties in Pennsylvania and parts of New Jersey. The $738 million line is expected to be in service Dec. 1, 2015.
  • EQT making a big push in the Utica.  EQT Corp. is preparing for a monster, the extent of which was unimaginable a year ago, company leaders said.

    The Utica Shale, which lies below the Marcellus Shale and in parts of southwestern Pennsylvania some 13,000 feet below the surface, has the potential to change the company’s focus, derail development of other projects and bring some serious gushers to Allegheny County.

    “If the deep Utica works, it is likely to be larger than the Marcellus over time,” David Porges, president and CEO of Downtown-based EQT, told analysts Thursday morning. “We’re going to be able to supply a big portion of North America’s natural gas needs from a relatively small geography.”

    The small geography might be a stretch of land between Allegheny County and Wetzel County, W. Va. That’s where EQT plans to drill between 10 to 15 Utica wells next year, a program that will be finalized — along with a smaller 2016 company-wide capital budget — in December.

    EQT completed its first dry gas Utica well in Pennsylvania in the summer, with a record initial production rate and an ultimate recovery that EQT estimates might be three to four times that of an average Marcellus well, which analysts put around 4 billion cubic feet. The Utica well, however, cost the company $30 million.

    Steven Schlotterbeck, president of exploration and production, said EQT is “making good progress on cost reductions” at two Utica wells under development and is confident it can reach its target range of $12.5 billion to $14 billion per well.  

    The Utica program for next year is likely to bring some large wells to southern Allegheny County, where EQT has significant holdings, and may stretch into the northern part of the county, according to Mr. Schlotterbeck, although lack of infrastructure there makes the prospect less attractive.

    There is a lot riding on this for EQT.

    The company has been hammered by falling natural gas prices. During the past quarter, the price its production arm was able to get for the fuel was $1.21 per thousand cubic feet, 55 percent lower than during the same time last year. That impacted its net income, which was $40.8 million, or 27 cents per share for the third quarter, a drop from $98.6 million, or 65 cents per share, reported for the comparable period last year.

    The prices that Appalachian producers get for their gas are lower than the average national price because of pipeline bottlenecks making it more difficult to get Marcellus and Utica gas to more lucrative markets.

    The same infrastructure constraints that depress local prices are creating opportunity for EQT’s midstream service, both within the company and at its spinout, EQT Midstream Partners.

    Still, the Utica has the potential to exacerbate that problem, with new pipelines designed to handle the higher pressure of Utica gas flow becoming necessary.

    “It is still too early to be confident that play will be economic,” Mr. Porges said.

    But if it works — meaning if the financial returns for Utica gas are better than the Marcellus — it will change how EQT prioritizes its drilling inventory.

    More broadly, it will also impact where the company operates.

    Because natural gas prices are stubbornly low, the company said it would suspend drilling in areas where the costs to produce gas is only slightly below the sales prices. That includes wells in the Upper Devonian, which sits above the Marcellus, and in the Marcellus in central Pennsylvania. EQT has 80,000 acres between Clarion, Cameron, Clearfield, Elk, Jefferson and Armstrong counties.

    “The cannibalization of other opportunities will affect everyone, including those of us who will be much better off if the Utica works,” Mr. Porges said.
  • Drilling More Gas While Driving Down Costs.  Southwestern Energy Co. says it is figuring out ways to drill better-performing wells on West Virginia and Pennsylvania land it bought from larger operators last year, even as energy prices remain cheap.

    Its newly drilled natural gas wells in the Marcellus Shale acreage are outperforming the old wells it acquired from Chesapeake Energy and Statoil late last year, by a big margin.

    They’re pumping 60 percent more gas than expected and drilling and completion costs have come down by 20 percent, in part because oil field service companies have reduced equipment and service prices.

    “It’s easy to see this asset has tremendous upside, even more than we anticipated when making the deal last year,” Southwestern President and Chief Operating Officer William Way said in a conference call with investors on Friday.

    Way said Southwestern is drilling its Marcellus wells in a smaller area where it believes gas production could be most prolific, a tactic known as high-grading.

    It has also begun using tighter spacing between frac stages and has increased the amount of sand it uses to as much as 3,000 pounds per foot in its subterranean laterals. That’s brought costs down under $1,000 per completed lateral foot, compared to $1,200 last year. Southwestern also cut the time it takes to drill and complete a Marcellus well by two days.

    Southwestern’s Marcellus acreage is one of the latest examples of the efficiency gains U.S. oil companies are seeing. The efforts also illustrate how much cheap natural gas and oil prices are draining away earnings despite cost and productivity improvements.
  • Hess may be pulling out of the Utica.  Oil and gas producer Hess, which over the last few years has remade itself into an exploration and production company, shedding millions of dollars in assets, reportedly is seeking buyers for its Utica Shale play assets.

    The New York-based explorer is working with Goldman Sachs to solicit bids for the assets, which could bring in up to $500 million, Kallanish Energy understands.

    The asset for sale is the company’s 50% stake in its joint venture with Consol Energy. In the Utica, Hess has a 50% working in 45,000 acres, with net production in 2015 between 20,000 and 25,000 barrels of oil-equivalent per day. It reduced its active rigs in the region to one from two.

    Representatives for Hess and Goldman Sachs declined to comment.

    Hess, once an integrated energy company, has been remaking itself into an E&P since settling a proxy battle in 2013 with activist investor Elliott Management. It sold its gas-station network and is spinning off its pipeline operations.

    The company sold some Utica assets last year for more than $1 billion.

    Hess’ largest holding in the Lower 48 States is in the Bakken Shale in North Dakota, where it had eight active rigs drilling on 600,000 acres during the second quarter, according to September investor presentation.
  • Virtual Pipelines; A way around blocked pipelines. (Thank you, Marcellus Drilling News) A harbinger of things to come? Just two days ago MDN reported on an upstate New York paper mill that converted to using natural gas to operate the mill and decided to stick with trucked compressed natural gas (CNG), something called a “virtual pipeline,” instead of going through the hassles of building a permanent pipeline (see NY Paper Plant Opts for “Virtual” NatGas Pipeline Over Real One). On the heels of that announcement we have a second virtual pipeline announcement. A company based in Florida called Pentagon Energy announces they’ve just scored their first contract–in the Marcellus Shale–to build a CNG “Mother Station” (think central hub) that will truck 2.5 billion cubic feet (Bcf) of CNG per month to customers throughout the northeast. It is another virtual pipeline to customers not served by a real pipeline. We find this an exciting development with the power to mute some protests over pipelines. So who is Pentagon Energy and who is their first, big customer?

    Obviously, we will watch the development of these Mother Stations very closely.  Their will have dramatic impact on the on NatGas pricing and production.
  • Occidental selling in the Bakken.  Occidental Petroleum Corp. is reportedly selling its Bakken shale assets in North Dakota at a steeply discounted price of $500 million to Lime Rock Resources private equity firm in Houston. Reuters broke the story, but Guy Baber of Simmons & Company International wrote Friday that Occidental was shopping the acreage in the fall of 2014 for as much as $3 billion.
  • Things are not that bad at Noble.  Noble Energy, Inc. (NYSE:NBL) today announced that its Board of Directors has declared a quarterly cash dividend of 18 cents per common share payable on November 16, 2015, to the shareholders of record at the close of business on November 2, 2015.

    Noble Energy is a global independent oil and natural gas exploration and production company, with proved reserves of 1.7 billion barrels of oil equivalent at year-end 2014 (pro forma for the Rosetta acquisition). The company's diverse resource base includes core positions in four premier unconventional U.S. onshore plays - the DJ Basin, Eagle Ford Shale, Delaware Basin, and Marcellus Shale - and offshore in the U.S. Gulf of Mexico, Eastern Mediterranean and West Africa.
  • Bullish report about NGLs Going to Europe and Asia. Several factors – including the phenomenal, enduring growth in natural gas liquids (NGLs) production from the U.S. shale plays and significant pipeline capacity additions – have combined to make redevelopment of the Marcus Hook Industrial Complex (MHIC) in Delaware County, Pa. more favorable, per IHS research.

    Other key factors that have become plusses for redevelopment of the Marcus Hook Industrial Complex also include the site’s proximity to major markets and the value of ethane as feedstock for European and Asian petrochemical producers, IHS said.

    According to the Marcus Hook Industrial Complex Reuse Study: Update 2015, A Regional Analysis from IHS, a number of factors have become more favorable for redevelopment of the MHIC in terms of the market, logistics, energy resource supply, and ongoing site improvements being made at MHIC since IHS conducted its initial reuse assessment three years ago.

    These low-cost, shale-gas feedstocks have given the U.S. a competitive edge in chemical derivative markets that use NGLS as a feedstock, IHS said, and have expanded downstream opportunities for the MHIC, including enhancing its viability for ethane cracking and derivatives operations.

    In its original assessment, IHS examined seven potential reuse options for the Marcus Hook facility, five of which were energy-based options: 1) Natural gas liquids processing and fractionation facility; 2) Gas-to-liquids (GTL) production and storage facility; 3) Liquid natural gas liquefaction and export terminal; 4) Refined petroleum products and NGLs terminal; 5) Natural gas-driven power generation, as well as two Marcellus shale chemical-based options: 1) Ethane cracking and derivatives; and 2) Propane dehydrogenation (PDH). Three of the 2012 reuses with high market viability – a PDH plant, a NGLs fractionation facility, and a NGLs export terminal - are currently being pursued at the MHIC.

    In just three years since the initial IHS reuse study was done, MHIC has attracted millions of dollars in new capital investment. In response to the development interest in Marcus Hook, Sunoco Logistics (SXL) has made, and continues to make, major enhancements to the site, which in turn, is creating new opportunities for industrial development in the area.

    The higher than anticipated growth in the volume of NGLs being produced in the Marcellus shale formation is, in turn, driving the substantial increase in the volume of NGLs that will flow to MHIC via the Mariner East pipeline projects. These factors increase the potential for exports of natural gas liquids, the report said.

    In 2015, IHS continues to recommend the construction of a propane dehydrogenation plant to make propylene for Braskem’s existing polypropylene plant at the Marcus Hook site, using shale-based propane from Marcellus shale. Propylene supply limitations have constrained regional demand growth, driving propylene prices up. IHS forecasts that global polypropylene demand growth is expected to average 4.9 percent during the next five years. The current market viability of a PDH plant at the MHIC is high, the IHS report said, the same as in 2012 study.

    IHS estimates that a proposed PDH plant could have an annual capacity of up to 400,000 metric tons if most of its output is sent to the adjacent Braskem polypropylene plant. While a PDH plant is currently in the works at the site, if Sunoco Logistics is able to find other customers for the propylene, IHS noted, the capacity of the PDH facility could be substantially higher.
  • Schlumberger sees 2017 as the turnaround year.  Schlumberger Ltd. was the first oilfield service company to announce its third quarter earnings, which were down 49% but essentially in line with Wall Street’s estimates. What wasn’t on the analysts’ radar screens, however, was the demonstratively more negative view of the next stage of the oil and gas industry, and its impact on the energy service business, expressed by the company’s leader. At the beginning of this year, Schlumberger aggressively cut its organizational structure in what was perceived as an overly negative view of the emerging downturn. In hindsight, Schlumberger’s management team seems to have been more right than wrong in its judgement. Now the company’s management is less optimistic about the timing of the recovery it projected earlier and is suggesting more layoffs are coming before yearend. As Schlumberger’s CEO Paal Kibsgaard stated during the company’s earnings call, “…while our macro view has not changed in terms of a tightening supply and demand balance, and an expected improvement in oil prices, we have to factor in that the likely recovery in our activity levels now seems to be a 2017 event.” Oops, there goes the belief in a V-shaped recovery by early in 2016.
  • With low oil prices, Saudi’s are squeezing contractors.  Saudi Arabia is reportedly postponing payments to government contractors as the steep decline in oil prices over the last year has produced a deficit for the first time since 2009.

    Sources speaking to Bloomberg on condition of anonymity say that companies working on infrastructure projects have been waiting six months or more for payments as the Saudi government attempts to preserve cash. This year, delays have increased and the government has also been seeking to reduce prices on contracts, the sources said.

    As oil represents approximately 80% of revenue, Saudi has responded to the fall in oil prices by curbing spending, tapping foreign reserves, postponing projects and selling bonds. At the end of August, Bloomberg reports, net foreign assets dropped by roughly $82 billion after reaching a record-high last year. Further, Saudi has raised $15 billion this year from debt issuance.

    Delays in payments could slow the completion of projects currently under construction, and slow the expansion required to create jobs for a growing population. Government spending has been an impetus for growth in the past. For instance, in 2011 when authorities announced $130 billion in social spending, the economy grew by 10%. According to Bloomberg data, in 2015 growth will probably be about 3%.

    Lower oil prices, joined with Saudi's spending plans, will leave the Royal Kingdom with a budget deficit north of 400 billion riyals this year, according to the IMF. And, according to a report by HSBC, the total deficit for 2015 to 2017 will likely surpass $300 billion.

    The Saudi government has implemented a series of cost-cutting moves, including a halt on new construction contracts and bans on purchasing new vehicles or furniture, sources told Bloomberg earlier this month.

    However, with a gross debt-to-GDP ratio of less than 2% last year, Saudi Arabia’s public debt is among the lowest globally.

    Saudi Arabia is now storing record amounts of crude amid a fall in shipments. Crude exports fell to 7 M/bpd in August from 7.28 M/bpd in July. Meanwhile, commercial crude stockpiles increased to 326.6 million barrels- representing the highest since at least 2002, according to the Joint Organizations Data Initiative.

    About 140 billion riyals of construction contracts were awarded in Saudi Arabia in 1H15, a 12.4% rise versus IH14, according to a National Commercial Bank report cited by Bloomberg.
  • Marcellus Natural Gas to Save Plant in the UK.  The benefits of the dramatic increase in U.S. fracking operations in recent years are evidently extending well beyond the domestic chemical industry. Bloomberg reports that U.K.-based Ineos Group recently completed a $1 billion renovation of its largest plant with the help of natural gas from Pennsylvania.

    Previously, the company's facilities in Grangemouth, Scotland, were operating at less their half their capacity and faced the possibility of closure amid the decline of oil and gas fields in the nearby North Sea.

    Its new storage tank, however, is the biggest in Europe. Ineos' ethane cracker will process the gas into ethylene, which is the feedstock for a variety of chemicals used in plastics and other materials.

    The operation relies on an agreement with Sunoco Logistics. Natural gas from a pipeline in the Marcellus shale formation will be loaded onto eight Chinese-made tankers and whisked across the Atlantic to the Grangemouth plant.

    "It was the only plan, the survival plan for Grangemouth chemicals," John McNally, Ineos’ olefins and polymers chief in the U.K., told Bloomberg.

    The plan could serve as a model for other European chemical manufacturers after the U.S. fracking boom sharply reduced the cost of American natural gas compared to fuel from European fields.

    Austrian chemical company Borealis will reportedly import some ethane from the U.S. to fuel its crackers in Sweden.

    Ineos, however, also recently announced the purchase of gas fields in the North Sea to bolster its supply. The company also hopes to eventually use fracking to access onshore gas fields in the U.K. — although the practice's environmental effects make it a thorny political issue across Western Europe.

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 23, 2015
Marcellus 26 down 2
Utica 1 unchanged
Utica 21 up 2
Marcellus 17 down 1
Eagle Ford – 77 up 1
Permian Basin  191 down 4
Permian Basin – 38 down 1
Williston – 63 unchanged
Williston – 1 unchanged
Niobrara – 25 unchanged

TOTAL U.S. Rig Count 752 down 2

PA Permits for October 15, to October 22, 2015

      County                Township            E&P Companies

1.    Armstrong           South Buffalo        XTO
2.    Beaver                 Independence       Range
3.    Beaver                 New Sewickley     PennEnergy
4.    Bradford                Herrick               SWN
5.    Bradford                Herrick               SWN
6.    Butler                    Concord             Rex
7.    Butler                    Donegal             XTO
8.    Butler                    Forward             XTO
9.    Clearfield               Bigler                Campbell Oil & Gas
10.    Clearfield              Goshen             Energy Corp.
11.    Fayette                  Luzerne           Chevron
12.    Greene                  Center             EQT
13.    Greene                  Center             Vantage
14.    Greene                  Center             Vantage
15.    Greene                  Gray                Vantage
16.    Greene                  Gray                Vantage
17.    Greene                  Gray                Vantage
18.    Greene                  Gray                Vantage
19.    Greene                  Jackson           Rice
20.    Greene                  Jackson           Rice
21.    Greene                  Jackson           Rice
22.    Greene                  Jackson           Rice
23.    Greene                  Washington      EQT
24.    Greene                  Washington      EQT
25.    Greene                  Washington      Vantage
26.    Sullivan                  Forks               Chief
27.    Washington            Amwell           , EQT
28.    Washington            Amwell             EQT
29.    Washington            Hopewell           Range
30.    Washington            Somerset          Range
31.    Washington            Somerset          Rice
32.    Washington            Somerset          Rice
33.    Washington            West Finley      SWN
34.    Washington            West Finley      SWN
35.    Washington            West Finley      SWN
36.    Washington            West Finley      SWN
37.    Washington            West Finley      SWN
38.    Washington            West Finley      SWN

OH Permits – week ending October 17, 2015

       County              Township            E&P Companies

1.    Belmont             Washington          Gulfport
2.    Belmont             Washington          Gulfport
3.    Belmont             Washington          Gulfport
4.    Belmont             Washington          Gulfport
5.    Belmont             Washington          Gulfport
6.    Belmont             Pultney                XTO
7.    Carroll                Orange                Chesapeake
8.    Carroll                Orange                Chesapeake
9.    Carroll                Orange                Chesapeake
10.    Noble                Jefferson            Triad Hunter
11.    Noble                Jefferson            Triad Hunter

Joe Barone 610.764.1232
Vera Anderson 570.337.7149


Utica Summit 2019