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Expo/Industry events for the next few months

Marcellus Utica Midstream
January 26-28
David L. Lawrence Convention Center
Pittsburgh, PA

http://www.marcellusmidstream.com/

Latest facts and a rumor from the Marcellus and Utica Shale

  • Rice 3rd Qtr. Update – Increasing Spending.  Rice Energy is boosting capital spending and accelerating production despite a prolonged downturn in the industry that has forced a pullback by other shale gas drillers.

    “We're investing in the same areas today as we were when gas prices were much higher. And I think we may be the only company in Appalachia whose strategy and focus has remained the same during this price cycle,” Daniel V. Rice IV said Thursday during a call with analysts to discuss the company's latest financial results.

    The Cecil-based company raised its 2015 capital budget for exploration and production to $730 million from $680 million. The company is paring spending slightly in the Marcellus shale because of improved efficiencies in its operations. But it is increasing spending by nearly 30 percent in the Utica shale, which is beginning to get more attention from gas drillers.

    The Utica is less explored in Pennsylvania — development has centered on Ohio — but it could hold as much or more recoverable gas than the Marcellus, a government report found this year. Rice said it began selling gas in late August, three months ahead of schedule, from its first operated Utica well in Pennsylvania.

    The company said gains from the Utica and from Marcellus wells coming online sooner than expected helped boost gas production by 147 percent during the third quarter. Production started at 14 Marcellus wells, eight of which came online about four months early, the company said.

    The increased production helped Rice swing to a profit in the quarter. The company earned $59 million, or 43 cents per share, compared with a loss of $6.9 million, or 5 cents per share, in the same period last year. Revenue rose to $143.6 million from $79.1 million.

    The company also announced that Rice Midstream Partners, a limited partnership formed by Rice Energy, bought the water services business of a Rice Energy subsidiary, Rice Midstream Holdings LLC, for $200 million, but that sale took place after the third quarter.
     
  • Appalachian Basin 2016-2017 Outlook.  The trio of producer-representatives sat on the platform’s comfortable chairs and offered a “state of the industry” presentation.

    Joe Frantz, vice president, Engineering Technology with Range Resources; Craig Neal, vice president of Operations for Consol Energy’s CNX Gas; and Ken Mariani, president of EnerVest, didn’t represent the biggest operators in the Marcellus and Utica Shale plays.

    What they did represent at last week’s 2015 Eastern Oil & Gas Conference and Trade Show (presented by PIOGA, the Pennsylvania Independent Oil & Gas Association) were a trio of companies working the Appalachia Basin before it was cool to be unconventional, which know how to be successful, and whose reps weren’t afraid to take the sugarcoating off the current industry situation.

    The two-day conference/trade show was held in Monroeville, Pennsylvania; Kallanish Energy was in attendance.

    None of the three was overly optimistic about the near-term, but no one was throwing in the proverbial towel, even though Range and CNX parent Consol, sans one-time charges, both lost money in the third quarter.

    “We think 2016 and 2017 will be real challenging years for a lot of companies,” Frantz said.

    “We are very bearish for the next 18 months,” Mariani said. “We see gas prices between $2.25/Mcf, and $2.75/Mcf in 2016-2017.”

    Interestingly, philosophy appears to be shifting in the Appalachian Basin and, truth be told, across all of the U.S. shale plays. Where once production was king, with capital cheap and readily available, it was “drill, drill, drill.”

    Now? “Cash flow is the No. 1 focus for us in 2016; production is No. 2,” Neal told his audience.

    “We don’t care about production,” Mariani said. “To us, it’s well economics that’s important.”

    Zeroing in on investment – or lack thereof — Houston, Texas-based EnerVest has seen 25%-30% of its borrowing base lost on a year-over-year basis, according to Mariani.

    “Sophisticated investors today may be a little gun-shy about investing more in the industry because they may have been burned,” Mariani said. “But new investors will be there because it’s a great time to invest in the industry (with low prices for oil and gas translating into bargain company share prices).”

    In lieu of investor capital, all three panelists agreed mergers and acquisitions, which have started out slowly over the last year, will increase moving forward.

    Also on the proverbial plate of many companies? “There will be consolidations, but we are looking at divestitures,” Neal said.

    “Divestitures provide cash to drill,” according to Mariani. “If we spent zero dollars for capital expenditures, we would see a 16% decline in production at EnerVest.

    “We’re an acquisition company, so we’re looking,” Mariani added. “We’re forecasting a strong fourth quarter for [industrywide] acquisitions. We currently are prioritizing 14 possible acquisitions.”
     
  • Magnum Hunter’s Situation Becomes a Little More Dire.  Another major financial deadline is coming for Utica shale driller Magnum Hunter Resources Corp.

    It's been a tumultuous year for the Texas driller (NYSE:MHR), with the company racing to meet deadlines to raise $65 million and facing a delisting from the New York Stock Exchange.

    Magnum Hunter has attractive assets – a pipeline system and a joint drilling venture – that it says could fetch up to $1 billion. The company said earlier that the pipeline deal is close to being finished, but it hasn't happened.

    In August it signed a letter of intent with an unnamed private equity company for $430 million for its Ohio joint venture. Magnum Hunter said then it expected a definitive agreement within 30 to 45 days and the deal to close 15 to 30 days after that, but there's been no closure yet.

    The Street says another investor has asked the company to consider finding buyers in other oil and gas companies such as Gulfport Energy Corp. (NASDAQ:GPOR) and Antero Resources Inc., (NYSE:AR), both of whom are prominent Utica shale drillers in eastern Ohio.

    If Magnum Hunter doesn't address concerns, warns the investor, Kevin McGrath, he may "form a coalition to protect our interests in the company."
     
  • Chesapeake’s 3rd Qtr. Update.  The second-largest producer of natural gas and the 11th largest oil and NGL producer in the US has cut its 2015 Capex for the second time this year, while at the same time raising its production forecast.

    With natural gas comprising ~72% of its total hydrocarbon production (oil-17%, NGLs-11%), Chesapeake Energy has been impacted by a confluence of low oil and natural gas prices. The impact of the bear market has prompted the company to reduce its total headcount by 15% so far this year, as well to suspend its dividend.

    Chesapeake said Wednesday morning that it has cut its 2015 Capex target to $3.4-$3.9 billion from $3.5-$4.0 billion. The company says it's also prepared to execute on a "significantly lower capital program" next year.

    Raised 2015 Production Guidance

    Chesapeake announced an increase to its total 2015 production guidance to 670,000 – 680,000 boepd, representing a 6% – 8% increase over 2014 results, adjusted for asset sales.

    These asset sales include the write down of the value of some of the company's oil and gas assets by $5.42 billion, adding to the $10 billion in impairment charges Chesapeake has already booked in 2015.

    2 Shale Plays As Central To 2016 Plans

    In September, Chesapeake highlighted 2 shale plays that it considers central to its 2016 plans. The company finalized new gas gathering agreements with the Williams Companies in its Haynesville Shale operation area in northwest Louisiana and its dry gas Utica Shale area in eastern Ohio.

    Beginning in January 2016, Chesapeake says it will move to a fixed-fee agreement in the Haynesville Shale. Gas gathering fees in the Haynesville will be reduced on a unit basis, and the existing minimum volume obligations are expected to be met with the consolidation of two gathering systems and a projected increase in Haynesville area volumes

    Rig count update:
     
    • Eagle Ford Shale: Averaged 3 rigs in 3Q, CHK plans to maintain 3 operated rigs through the end of the year.
    • Haynesville Shale/Bossier Sahles: Averaged 6 rigs in 3Q, expects maintaining 6 through end of the year.
    • Mississippi Lime: Averaged 3 rigs during 3Q, "the company has released all operated rigs in the area through the end of the year."
    • Oklahoma STACK: The Stangl 36-16-9 1H is currently drilling with a planned lateral length of 9,426 feet. The company intends to keep one operated rig in the STACK area through the end of the year.
    • Utica Shale: Operated rig count in the Utica averaged two rigs in 3Q, expects maintaining 2 operated rigs through the end of the year.
    • Marcellus Shale: Operated rig count in the Marcellus averaged one rig in the quarter, expects maintaining one operated rig through the end of the year.

Powder River Basin: Operated rig count in the PRB averaged one rig in 3Q, and the company has released all operated rigs in the area through the end of the year.

  • EnerVest Is Buyer.  EnerVest and its institutional partnerships on Wednesday announced two oil and gas asset acquisitions costing roughly $1 billion, Kallanish Energy reports.

    The Houston, Texas-based company was the unnamed buyer of Range Resources $876 million sale of its Nora Field assets, primarily located in Virginia, a deal Range announced Tuesday.

    The Virginia deal includes acreage and operated coalbed methane, tight gas, Berea, Big Lime and Huron Shale producing wells in Dickenson, Buchanan, Wise and Russell counties in Virginia, and Nicholas and Clay counties in West Virginia.

    "This acquisition adds to EnerVest's significant position in Appalachia, and includes additional drilling opportunities at today's commodity prices," said John B. Walker, CEO.

    The Virginia properties and production include:

    The Range acquisition is expected to close on Dec. 30.
     
    • Currently 105 million cubic feet-equivalent per day (MMcfe/d) of net production expected for November (100% gas) from 3,908 operated and non-operated wells
    • Acreage totaling roughly 365,000 acres, of which 220,000 includes all mineral rights in Virginia, with an additional approximately 100,000 acres in West Virginia, most of which includes all mineral rights
    • An inventory of roughly 9,000 undrilled locations
    • A 1,500-mile gathering system
       
  • EnerVest also purchased a non-operated interest in the core of the Eagle Ford Shale in Karnes County, Texas, from an undisclosed seller for $118 million, a deal made in October.

         In the Eagle Ford Shale, the properties include
         More than 2,200 barrels of oil-equivalent per day (BOE/d)
         7.8 million barrels of oil-equivalent (MMBOE) of reserves
         Roughly 1,760 acres

    In September, EnerVest announced plans to buy Eagle Ford assets, also in the Karnes County area, for $125 million from Alta Mesa Holdings.
     
  • Opposition to the MarkWest – Marathon Deal.  The co-founder, former CEO and current unitholder in natural gas processor MarkWest Energy Partners, John Fox, on Wednesday came out in opposition to a proposed $15.6 billion takeover by Marathon Petroleum, saying it would lead to a big cut in cash distributions to unitholders.

    Fox, who owns less than 1% of MarkWest, said the Denver, Colorado-based company should remain a standalone company, Kallanish Energy understands.

    Marathon plans to buy MarkWest in a cash-and-stock deal through its pipeline master limited partnership (MLP), MPLX.

    The deal would reduce distributions by 46% and the cash being paid by MPLX would not adequately make up for losses incurred by MarkWest investors, Fox said in an open letter to the board of MarkWest Energy, MarkWest's general partner.

    Directors and executive officers of MarkWest Energy GP own roughly 0.8% of MarkWest.

    MPLX has offered 1.09 of its units and $3.37 in cash per MarkWest unit, which translated to about $78.64 per unit when the offer was made on July 13.

    MarkWest closed at $46.03 on Wednesday.

    Since MPLX is required to make incentivized distribution rights payments to Marathon, that would reduce the amount of cash available for MarkWest Energy unitholders, Fox said.

    Fox said MarkWest Energy had "a tremendous growth platform" given its assets across the country, including those in Ohio's Utica Shale and Pennsylvania's Marcellus Shale plays, as well as 4,000 miles of pipelines.

    "Why would you give away, for pennies on the dollar, this marvelous company you have built and all its future growth potential?" Fox said in the letter released to the public on Wednesday.

    The MarkWest-MPLX deal comes at a time when MLPs have lost favor among investors as the tax-advantages linked to these structures become less attractive due to a steep plunge in oil prices that has hit profits in the oil industry.

    The acquisition, which will create the fourth-largest MLP, is expected to close in the fourth quarter.
     
  • More MarkWest – Experiencing Delays.  US midstream operator MarkWest has delayed the start date for some of its gas processing plants in the Marcellus region, citing downstream pipeline delays.

    MarkWest's operating schedule for its planned 200mn cf/d Fox I gas processing plant, which includes a 20,000 b/d de-ethanization unit, and its 200mn cf/d Majorsville VII plant in western Pennsylvania, are now pushed back from the fourth quarter of 2016 to the first quarter of 2017. In West Virginia, its 200mn cf/d Mobley gas processing plant and associated 10,000 b/d de-ethanization unit is now expected to come online in the first quarter of 2016 rather than the end of this year.

    The delays stem from the scheduling of downstream gas pipelines needed by customers, chief executive officer Frank Semple said.

    "They're very much dependent on the commodity price environment and the timing of the pipeline projects I mentioned earlier on both gas and liquids," he added.

    MarkWest completed an 80mn cf/d expansion of its Carthage IV gas processing plant in east Texas in October, bringing the total capacity of the facility to 600mn cf/d.
     
  • Sunoco Slows Two Projects.  Sunoco Logistics said Thursday it has slowed early development on a potential crude oil pipeline expansion in West Texas and the first petrochemical complex in the U.S. Northeast due to the ongoing slump in energy prices.

    The company’s project slowdown affects its Permian Express pipeline system, which transports crude from West Texas to the Gulf Coast, Kallanish Energy reports.

    "Obviously, the market doesn't need Permian Express III," said Michael Hennigan, CEO of Sunoco Logistics, during the company's third-quarter earnings call.

    Sunoco had not yet given firm details on the scope of the Permian Express III project, but has said its 200,000 barrels per day (BPD) Permian Express II that opened in July could be doubled.

    The buildout of pipelines in the Permian has prompted the arbitrage between Permian-sourced crudes and other hubs to deteriorate, a market shift that caused revenues in Sunoco's crude oil marketing group to fall by more than 58% year-over-year.

    "When the arbitrage isn't there, we don't move barrels," Hennigan said.

    The company also said development of its previously announced propane dehydrogenation (PDH) facility at Marcus Hook, Pennsylvania, has slowed as low energy prices dampen customer interest.

    The facility, which would be the first of its kind in the region, would convert Marcellus and Utica Shale sourced-propane into propylene for export to Northwest Europe.

    "We're disappointed that the commodity environment is slowing things down," Hennigan said.

    Sunoco is a unit of Energy Transfer.
     
  • SandRidge Buying into the Niobrara.  SandRidge Energy is acquiring the assets of privately-held EE3 in the Niobrara Shale for $190 million in cash, Kallanish Energy learns.

    With the deal, independent producer SandRidge said it will have a material, de-risked Niobrara Shale position in the North Park Basin in Jackson County, Colorado. The 136,000 acres acquired is largely concentrated in a rural areas “ideal for pad drilling and efficient infrastructure installation.”

    “Expanding into a proven, high quality, repeatable oil play leverages our core competencies in medium depth horizontal drilling, unconventional development, infrastructure, and cost reduction,” said James Bennett, SandRidge CEO. “We will be mobilizing to spud our first well in January."

    The buy includes a large, concentrated acreage position in Niobrara Shale play that has five stacked benches at depths of 5,500 to 9,000 feet, reservoir thickness over 450 feet, oil in place greater than 55 million barrels per section and an over pressured reservoir, according to SandRidge.

    The estimated ultimate recovery (EUR) per well of 311,000 barrels of oil-equivalent generates 32% internal rates of return at recent strip pricing with well costs below $4 million, SandRidge said. The buy holds an estimated 27 million barrels of oil-equivalent (MMBOE) of proved reserves (82% oil).

    Roughly 47% of the 136,000 acres are held by production and by two Federal units.
     
  • Halliburton – Baker Hughes Deal Meeting More Challenges.  In a note to clients Jefferies analyst Brad Handler writes that there is "some chance it [the deal] is blocked" by regulators. Handler sees rising risk in the transaction's ability to close.

    As a reminder, Halliburton has continued to target closing the deal by year-end, but recently said the transaction could move into 2016 (allowed under the merger agreement).

    Here are a few of the key points Brad Handler makes:
     
    • Worrying signs persist, especially from the European Commission antitrust regulators.
    • The Australian Competition & Consumer Commission recently highlighted concerns and delayed a decision on merger approval until 12/18/15.
    • The probability of the deal closing is lowered to 67% from 85%.
    • If the deal breaks, Baker Hughes stock could fall 25-30%, while Halliburton shares have limited downside risk.
    • Baker Hughes' ability to compete on its own has been compromised, but it is still functioning as recent results have been ahead of expectations.
    • If the deal is blocked by regulators, Halliburton would likely take legal action to try and overcome the ruling.

        Halliburton continues to move ahead with the divestitures required by the DoJ in order for the deal to close. The divestitures would close simultaneously with the bigger transaction.

 

  • The Drillers and Counties That Dominate the Marcellus and Utica.  Just nine counties in the Marcellus and Utica Shale states of Pennsylvania, Ohio and West Virginia, are host to more than half the nearly 8,000 drilled wells in the trio of states, according to new data.

    And in the same three states, just seven producers control more than half the wells drilled, Kallanish Energy finds.

    The database to track the above statistics and much more was developed/inputted by Timothy S. Knobloch, president of James Knobloch Petroleum Consultants of Marietta, Ohio. All data was publicly-accessible to regulatory authorities, none came directly from operators.

    Knobloch was a presenter at last week’s 2015 Eastern Oil & Gas Conference and Trade Show, held in Monroeville, Pennsylvania, and presented by PIOGA, the Pennsylvania Independent Oil & Gas Association. Kallanish Energy was in attendance at the two-day event.

    In Pennsylvania, 5,987 wells have been drilled, with Bradford Country (983 wells drilled), Washington (980); Susquehanna (855); and Lycoming counties (704) home to 3,522 wells, or 58.8% of the total, according to Knobloch.

    In Ohio, the counties of Carroll (364 wells drilled); and Harrison (149) control 56.7% of the 905 wells drilled in the state.

    In West Virginia, Wetzel County (191 wells drilled; Marshall (185) and Harrison (184) host 52% of the 1,076 wells drilled.

    Looking at top operators by number of wells drilled, Chesapeake Energy was the largest player, alone drilling 1,373 wells, 17.3% of the 7,968-well total in the trio of states combined.

    The Oklahoma City, Oklahoma-based independent was the top operator in Ohio (471 wells drilled), second in Pennsylvania (717 wells); and second in West Virginia (185 wells drilled), Knobloch reported.

    In Pennsylvania, Range was the top driller, with 842 wells drilled, following by Chesapeake, Talisman (421), Cabot Oil & Gas (415), Southwestern Energy (372) and EQT (355 wells drilled). Combined, the six operators controlled 52.1% of all wells drilled.

    Antero Resources took the top spot in West Virginia, with 191 wells drilled, and followed by Chesapeake (185), which nudged out EQT with 184 wells drilled. The trio controlled 52% of all wells drilled.
     
  • Continental Boosts Production in the Bakken.  Continental Resources, North Dakota's second-largest oil producer, boosted its production forecast this week despite posting a third-quarter loss, Kallanish Energy finds.

    The production boost comes just as the company's credit line was increased, as Continental, like many of its brethren, is banking on efficiency gains to help offset the steepest oil price crash in six years.

    "We continue to deliver on cost controls and operating efficiencies, while maintaining our exploration focus," Harold Hamm, Continental's CEO and largest shareholder, said.

    The Oklahoma City, Oklahoma-based company now expects to pump 24% to 26% more crude than last year's output of roughly 174,000 barrels of oil-equivalent per day (BOE/d). Previous guidance had called for a boost of 16% to 20%.

    While Hamm canceled Continental's oil hedges last fall, much of his confidence stems from the company's increasing ability to extract oil from the 1 million acres of North Dakota shale it controls.

    In the past 11 months, Continental said it has cut its drilling and completion costs for new wells by 25%.

    Still, Continental slashed its 2015 capital budget two months ago for the third time this year, saying it planned to temporarily end fracking of its North Dakota wells, a strategy it did not alter this week.

    For the third quarter ended Sept. 30, Continental reported a net loss of $82.4 million vs. net income of $533.5 million a year earlier.

    Production rose 25%, to 228,278 BOE/d

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Rig Count

  • Baker Hughes Rig Count the week of November 6, 2015
     
  • PA
    • Marcellus 27 unchanged
    • Utica 1 unchanged
  • Ohio
    • Utica 20 unchanged
  • WV
    • Marcellus 16 unchanged
  • TX
    • Eagle Ford – 72 down 3
    • Permian Basin  197 up 8
  • NM
    • Permian Basin – 35 down 5
  • ND
    • Williston – 63 up 1
  • CO
    • Niobrara – 26 up 1
       
  • TOTAL U.S. Rig Count 739 down 3

PA Permits for October 29, to November 5, 2015

County            Township                E&P Companies

1.    NO PERMITS THIS WEEK IN PA                               

OH Permits – week ending October 31, 2015

County            Township                E&P Companies

1.    NO PERMITS THIS WEEK IN OH

Joe Barone jbarone@shaledirectories.com 610.764.1232
Vera Anderson vera@shaledirectories.com 570.337.7149

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