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Expo/Industry events for the next few months

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

  • Notes from DUG Eagle Ford.  Congratulations to Hart Energy for another great DUG event.  In a very tough market, it delivered a very informative and networking event.  Some of the sentiments from the event:
    • Most companies seem to be adjusting to the downturn and realize the low prices could be with us for quite a while longer.  We can forget about the “V-shaped” or “U-shaped” recoveries.
    • There seems to be differing perspectives regarding the business opportunities in the low price market.  I’ve heard “Companies are hunkering down with current vendors because their relationships are successfully driving down costs.”  The other perspective is “With activity slowing down, companies have the time to evaluate a wider group vendors looking for low costs.”
    • Look for more deals.  Many of the speakers commented that there is a considerable amount of private equity looking to be distressed companies.
    • I learned a new oil and industry term “runaway.”  It’s the term financiers use when asking oil and gas companies how much time they left before they run out of money.
  • Major Oil Companies Turning to Shale.  A stubborn 16-month crude rout with no end in sight is driving the largest U.S. oil producers away from costly, high-risk megaprojects long touted as the industry’s future and toward safer shale operations that generate the cash needed to satisfy anxious investors.

    Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp., ConocoPhillips and Hess Corp. have all either delayed or abandoned projects that range from the deep seas of the Gulf of Mexico to Canada’s oil sands and the U.S. Arctic. At the same time, Exxon and Chevron both announced plans to substantially increase U.S. crude production, largely as a result of their shale operations.

    “What makes more sense in this environment: drill a $100 million well in the deepwater Gulf that might come up empty, or poke lots of holes in west Texas where you already know there’s oil for a few million apiece?” said Michael Webber, deputy director of the University of Texas Energy Institute.

    Reduced Spending

    Explorers are expected to slash spending on deepwater wells by 20 percent to 25 percent next year, compared with a 3 percent to 8 percent overall reduction on all types of fields, according to Barclays Plc analysts including J. David Anderson. The types of giant reservoirs that require megaproject treatment are now found in only the roughest, deepest and coldest parts of the world.

    One example: An equipment failure forced Chevron to put its $5.1 billion Big Foot development, a deepwater Gulf of Mexico project that was supposed to begin pumping crude this year, on hold until at least 2018. The San Ramon, California-based company hasn’t said whether the delay will bloat the price tag, which already had risen 28 percent from a 2010 estimate of $4 billion.

    International producers are failing to deliver 80 percent of megaprojects on time and on budget, compared with about 50 percent in 2005, said Neeraj Nandurdikar, oil and gas director at Independent Project Analysis Inc.

    “It’s really bad for megaprojects now,” said Joseph Triepke, managing director at and a former analyst at Citadel LLC’s Surveyor Capital unit. “When oil was $90 or $100 a barrel, there was a lot of wiggle room to make a return. But at $45 oil, there’s no wiggle room. Enormous projects can’t go over or be late.”

  • PTTGC (Belmont County, OH) Cracker Is Moving quickly.  A subsidiary of Thailand-based petrochemical/refining company PTT Global Chemical (PTTGC), PITGC America, has selected Paris-based Technip SA to provide technology licensing and the process design package for the company’s proposed petrochemical complex in Belmont County, Ohio.

    The complex’s cracker will have an ethylene production capacity of 1 million metric tons/year, the service company said. A contract value was not disclosed, Kallanish Energy finds.

    The latest contract follows a series of previous contracts PTTGC awarded for the project in September. The Thai company let an initial contract to a consortium of Fluor, Technip and SK Engineering & Construction to provide front-end engineering and design (FEED) on the complex, followed by a second FEED contract let to a partnership including Bechtel Enterprises Holdings, JGC America and Samsung Engineering America.

    PTTGC also has signed an option agreement for properties in Belmont County’s Mead Township, where the complex would be built, according to Supattanapong Punmeechaow, PTTGC’s chief executive.

    Technip said PTTGC remains on schedule to make a final investment decision on the greenfield project sometime in 2016-17.

    If approved, project construction would take 3-4 years.
  • Chinese firm does deal in the Permian.  In a deal that highlights China's interest in the US energy sector, Yantai Xinchao, a Chinese real estate developer, has inked a letter of intent (LOI) to buy oilfields in the Permian Basin in West Texas for $1.3 billion (8.3 billion yuan) through a limited liability partnership.

    The company said in Saturday disclosure to the Shanghai Stock Exchange that the oil fields in Howard and Borden counties will be acquired from two Nevada-based companies: Tall City Exploration and Plymouth Petroleum. Oilpro has reached out to both companies but have not yet received a response. The filing gave few further details on the assets being purchased.

    In a Sunday report, the Wall Street Journal noted that industry insiders say several of Chinese firms — including some whose main businesses are not O&G —have expressed interest in acquiring North American O&G assets. The over year-long decline in oil prices has, in many instances, rendered asset prices especially attractive.

    Due to comparatively stable regulations overseeing O&G E&P, the US has long been an attractive opportunity to Chinese energy firms. However, US restrictions on Chinese investment in potentially sensitive regions mean Chinese investment in the US O&G sector has thus far been limited.

    This deal underscores how Chinese firms are searching for new industries outside of China to be profitable, as domestic demand slows in tandem with a slowing economy.
  • 2016 CAPEX Budget cuts are coming out.  (Thank you, OilPro)Last week, we heard early 2016 capex budget indications from North American independent E&Ps. Two companies, Cabot O&G and Southwestern Energy, addressed their 2016 investment plans, providing moving targets for how wide their wallets will open next year. One thing was clear from the discussions: NAM E&P capex is going to be down by double digits (>10%) next year, governed more by cash flow than in any year in recent memory.

    This discussion is critical to drilling and completion businesses as E&P capital expenditures create the market for oilfield services. As a reminder, we outlined our 2016 E&P spending expectations about a month ago, calling for a 20%+ average y/y decline in spending next year.

    Cabot To Cut Eagle Ford Spending 44%

    Cabot Oil & Gas, which operates primarily in the Eagle Ford and Marcellus, plans to spend $765mm ($615mm for drilling and completions) which is down 15% from this year's budget of $900mm ($720mm for drilling and completions). Even with this cut, Cabot expects production to rise 2-10% next year. Two notable observations about Cabot's budget:
    • Cabot's drilling budget will be funded with operating cash flow. This is something we expect to hear from other operators as well.
    • Breaking down Cabot's drilling budget by play suggests that unconventional oil plays will suffer another big contraction next year. Specifically, Cabot's 2016 budget has Eagle Ford spending down 44% y/y, while Marcellus spending actually rises 5% in 2016. The Eagle Ford will only account for 26% of Cabot's 2016 D&C program, down from 40% this year. To us, this suggests that oilier E&Ps total budget cuts may exceed Cabot's total 15% chop as they roll out over the next few months.

Southwestern Is Measuring Twice, Hoping To Cut Once

Taking as much time as possible to size up the market before setting his budget, CEO Steve Mueller said his 2016 plan wouldn't be finalized until the first of the year. That said, he emphasized his "absolute focus on investing within cash flow." In fact, the company is so committed to this philosophy that Mueller said he is willing to let production decline if it means living within cash flow - one of the first US independents to deliver this kind of disciplined message.

Looking at the company's cash flow, we think its 2016 capex budget could end up being somewhere between $1.1-$1.4bn, a 25-40% y/y decline from this year's $1.9bn spend. In this re-investment range, Southwestern's production would likely grow only slightly next year. Management identified the Fayetteville shale as a potential swing area that could be disproportionately impacted in a lower for longer scenario.

  • Consol Has a Great Qtr.  Consol Energy reported record production in the third quarter, led by a 46% jump in Marcellus Shale production, with profit reaching nine figures vs. a year-ago loss.

    Production for the three months ended Sept. 30, reached 86.1 billion cubic feet-equivalent (Bcfe), up 33% from the 64.9 Bcfe produced in the year-earlier quarter.

    Consol has increased the lower end of its 2015 annual gas production guidance by 5 Bcfe, to 325-330 Bcfe, and the company expects approximately 20% annual gas production growth for 2016, Kallanish Energy finds.

    The company’s E&P Division's total unit costs declined during the quarter to $2.63 per million cubic feet-equivalent (Mcfe), compared to $3.12/Mcfe during the year-earlier quarter.

    "During the quarter, we beat production targets, locked in a significant percentage of our revenues for 2016 with additional gas hedges and multi-year coal contracts, significantly reduced operating costs, corporate overhead, and legacy liabilities, and accelerated our asset sale monetization program,” said Nick DeIuliis, Consol CEO.

    Marcellus Shale production in the third quarter totaled 44.9 Bcfe, 46% higher than the 30.7 Bcfe produced in the year-earlier period.

    Marcellus Shale costs were $2.57/Mcfe in the just-ended quarter, a $0.12/Mcfe improvement from the third quarter of 2014 costs of $2.69/Mcfe. The company achieved all-in cash costs of $1.62/Mcfe in the Marcellus.

    Consol Energy's Utica Shale production has more than doubled year-over-year, to 15.3 Bcfe, from 6.7 Bcfe in the year-earlier quarter.

    Utica Shale costs were $2.14/Mcfe in the just-ended quarter, a $0.23/Mcfe improvement from third-quarter 2014 costs of $2.37/Mcfe.

    The energy company, based just south of Pittsburgh, Pennsylvania, maintains its 2016 E&P capital budget of roughly $400-$500 million, which includes $50 million for midstream capital.

    Consol said Tuesday it expects fourth quarter E&P capital to decline significantly, when compared to the previous three quarters, due to the company laying down all operated rigs late in the third quarter.

    Third-quarter profit reached $118.89 million, compared to a $1.65 million loss one year ago. Revenue fell to $813.94 million, from $884.62 million one year ago.
  • First LNG Exports to Asia Pacific Countries.  Cheniere Energy expects to start receiving natural gas to convert into super-chilled liquefied natural gas

    (LNG) at its first U.S. LNG export terminal, in Louisiana, before year’s end, with shipments to start in January, its CEO said Monday.

    Cheniere's Sabine Pass facility will mark the first exports of cheap, abundant U.S. shale gas as LNG, Kallanish Energy reports.

    Ample supplies, combined with slowing growth in China and falling demand in top importers Japan and South Korea, have cut prices and prompted a battle for market share.

    First natural gas supplies will arrive at Sabine Pass in west Louisiana plant this year, CEO Charif Souki told reporters on the sidelines of Singapore International Energy Week.

    Spot LNG prices in Asia have tumbled by 50% from a year ago, narrowing the gap with U.S. benchmark prices. Tracking the plunge in energy prices, Cheniere's shares are down by almost half from their peak in 2014.

    Once Cheniere's first LNG plant starts up, the company will have a new LNG production train coming online every six months until mid-2019, leaving it with seven total lines of gas liquefaction at Sabine Pass project in Cameron Parish and at another terminal in Corpus Christi, Texas.

    The seven trains will account for almost half of the 65 million tons per year (MMTPY) of LNG export capacity under construction in the U.S.

    Cheniere has sold most of its 31.5 MMTPY of LNG via long-term contracts, with about 4 MMTPY remaining for sale in spot markets, Souki said.

    The current pricing structure is not a strong argument for building further LNG plants, Souki said, with any projects needing at least $8 per million British thermal units (MMBtus) to sell to Europe and $9 per MMBtus to sell to Asia.

    "I'm pretty sure the market will come back," he said, however, adding that Cheniere has applied for permits to build more trains. "You don't make a decision like this based on what's happening in the next six months. You make a decision based on what you think is going to happen over the next 20 years."
  • UGI Gets Cabot NatGas Moving South.  UGI Energy Services announced on Wednesday the completion of the Auburn loop, a new 9-mile, 24-inch pipeline that parallels the existing 12-inch Auburn pipeline.

    The project is the latest expansion of the Auburn gathering system, which brings natural gas from Marcellus Shale wells in Susquehanna County north to the Tennessee interstate pipeline and south to the Transco interstate natural gas pipeline.

    The gas is primarily from wells produced by Cabot Oil & Gas Corp.

    The Auburn extension connects to the Transco interstate pipeline at UGI’s gate station off Fire Cut Road in West Wyoming, from which natural gas is distributed to customers in the Wilkes-Barre area.

    The Auburn loop completion marks the third phase of the expansion of the Auburn gathering system, which included installing three additional units at UGI’s Manning Compressor Station in Washington Township, Wyoming County last November.
  • Antero 3rd Qtr. Financials.  Antero Resources (AR) announced its quarterly earnings results on Wednesday, Oct-28-2015. The company reported $0.05 Earnings Per Share for the quarter, beating the analyst consensus estimate by $0.01. Analyst had a consensus of $0.04 EPS. The company had revenue of $570.20 million for the quarter, compared to analysts’ expectations of $539.93 million. The company’s revenue was up 11.6% compared to the same quarter last year. During the same quarter in the previous year, Antero Resources posted $0.27 EPS.
  • EXCO 3rd Qtr. Financials.  EXCO Resources posted its earnings results. The company reported ($0.04) earnings per share (EPS) for the quarter, topping the Thomson Reuters’ consensus estimate of ($0.08) by $0.04, Market reports. During the same period in the previous year, the company posted $0.01 EPS. The firm had revenue of $83.50 million for the quarter, compared to analyst estimates of $95.20 million. EXCO Resources’ revenue was down 44.7% on a year-over-year basis.
  • Ethane Will Soon Be Moving East.  Sunoco Logistics' 70,000 b/d Mariner East I pipeline should begin delivering Marcellus shale ethane soon to the US east coast, committed shipper MarkWest Energy Partners said today.

    "Mariner East should be shipping ethane here any day," MarkWest vice president Scott Garner said at the Argus Condensate and Naphtha Markets conference in Houston, Texas.

    MarkWest in 2012 signed a 10-year transportation deal to move production from its Houston, Pennsylvania, fractionators to Sunoco's export terminal at Marcus Hook, Pennsylvania. US independent Range Resources, which this summer said ethane transit on the line could start up before October, has a 15-year transportation deal.

    The line has been delivering propane for nearly a year.
  • Williams 3rd Qtr. Financials.  Williams Cos. swung to third-quarter loss as the pipeline giant was hurt by a write-down and a decline in revenue.

    The Tulsa, Okla., company is being acquired by Energy Transfer Equity LP in a $32.6 billion deal that will create a massive U.S. network of natural-gas pipelines. The firms will have a combined network of more than 100,000 miles of oil and gas pipelines crisscrossing the continent.

    As a result of the pending deal, Williams withdrew its previous 2015 outlook and said it no longer will provide financial guidance.

    Williams offers Energy Transfer more access to the northeastern U.S., where connections are needed to bring surging output from the Marcellus Shale in Pennsylvania to New York and New England.

    As part of the deal, Williams is abandoning a plan it announced last May to buy its affiliated partnership, Williams Partners LP, in a $13.8 billion deal.

    Overall, Williams reported a loss of $40 million, or 5 cents a share, compared with a year-earlier profit of $1.68 billion, or $2.22 a share. Excluding one-time items such as the write-down in the latest quarter and a big-one time gain in the year earlier period, per-share earnings from continuing operations rose to 22 cents from 21 cents. Revenue decreased 13% to $1.8 billion.

    Analysts polled by Thomson Reuters expected per-share profit of 22 cents and revenue of $1.94 billion.

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 30, 2015
  • PA
    • Marcellus 27 up 1
    • Utica 1 unchanged
  • Ohio
    • Utica 20 down 1
  • WV
    • Marcellus 16 down 1
  • TX
    • Eagle Ford – 75 down 2
    • Permian Basin  187 down 4
  • NM
    • Permian Basin – 42 up 2
  • ND
    • Williston – 62 down 1
  • CO
    • Niobrara – 25 unchanged
  • TOTAL U.S. Rig Count 738 down 11

PA Permits for October 22, to October 29, 2015

       County               Township          E&P Companies

1.    Allegheny            Elizabeth            EQT
2.    Allegheny            Elizabeth            EQT
3.    Allegheny            Forward                EQT
4.    Allegheny            Forward                EQT
5.    Allegheny            Forward                EQT
6.    Allegheny            Forward                EQT
7.    Allegheny            Forward                EQT
8.    Allegheny            Forward                EQT
9.    Clearfield            Lawrence            EOG Resources
10.    Greene                Franklin            Vantage
11.    Lawrence                North Beaver            Hilcorp
12.    Lawrence            North Beaver            Hilcorp
13.    Lawrence            North Beaver            Hilcorp
14.    Lawrence            North Beaver            Hilcorp
15.    Lycoming            McHenry                PA Gen Energy
16.    Susquehanna            New Milford            SWN
17.    Tioga                Westfield            Travis Peak
18.    Washington            Somerset            Rice
19.    Washington            Somerset            Rice
20.    Washington            Somerset            Rice
21.    Washington            Somerset            Rice
22.    Washington            North Strabene            Range        

OH Permits – week ending October 24, 2015

      County                 Township          E&P Companies

1.    Belmont                Richland            XTO
2.    Belmont                Goshen                Rice
3.    Belmont                Wheeling            Ascent Resources
4.    Belmont                Wheeling            Ascent Resources
5.    Belmont                Pultney                XTO
6.    Belmont                Washington            Gulfport
7.    Belmont                Washington            Gulfport
8.    Belmont                Washington            Gulfport
9.    Belmont                Washington            Gulfport
10.    Monroe                Malaga                Antero
11.    Monroe                Malaga                Antero
12.    Monroe                Malaga                Antero
13.    Monroe                Malaga                Antero
14.    Noble                Beaver                Antero
15.    Noble                Beaver                Antero
16.    Noble                Beaver                Antero
17.    Noble                Beaver                Antero
18.    Noble                Beaver                Antero

Joe Barone 610.764.1232
Vera Anderson 570.337.7149


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