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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

Latest facts and a rumor from the Marcellus and Utica Shale

  • NatGas Finally Impacted by Colder Weather.  Cooler weather nationwide finally began to impact the amount of working natural gas in storage during the week of Nov. 27, the U.S. Energy Information Administration reported.

    At Nov. 27, total working gas in storage fell by 53 billion cubic feet (Bcf), or 1.3%, to 3.96 trillion cubic feet (Tcf), from 4.01 Tcf one week earlier.

    Even with the slight decline, the Nov 27 number was still 543 Bcf, or 15.9% higher than the 3.41 Tcf in storage one year ago, and 247 Bcf, or 6.7% higher than the five-year average of 3.71 Tcf, Kallanish Energy finds.

    One year-over-year comparison, the Midwest is still 126 Bcf, or 12.8%, above the year-ago total of 983 Bcf, and 56 Bcf, or 5.3% greater than the five-year average of 1.05 Tcf.

    The east region saw a 16 Bcf, 1.7% drop, to 919 Bcf on Nov. 27, from 935 Bcf one week earlier. The attest total was still 78 Bcf, or 9.3% higher than the year-ago total of 841 Bcf, and 16 Bcf, or 1.8% higher than the five-year average of 903 Bcf, according to the EIA data.

    The only other double-digit drop in cubic feet was recorded in the Lower 48’s South Central region, down 10 Bcf, or 0.7%, week-over-week, to 1.34 Tcf, from 1.35 Tcf. The Nov. 27 total was up 268 Bcf, or 25%, from the year-ago total of 1.07 Tcf, and up 149 Bcf, or 12.5%, from the five-year average of 1.19 Tcf.
  • New E&P Player in the Marcellus and Utica.  Newly formed Lola Energy is ready to start spending money on Marcellus and Utica shale gas operations despite the low prices and supply glut that have prompted budget cuts and layoffs by more established producers.

    The Pine-based company, founded last month by four former EQT Corp. executives, announced Tuesday it received a $250 million commitment from private equity firm Denham Capital.

    Lola will look for opportunities to buy wells or acreage from struggling producers, or to drill fresh wells on land where other companies’ leases have expired, said CEO Jim Crockard. The start of production will be “asset dependent. It could be next summer if we buy something or 18 months,” he said.

    The company will focus on the Marcellus and deeper Utica in what has become a core area of drilling in southwestern Pennsylvania, eastern Ohio and northern West Virginia, said Crockard, a Greene County native who left EQT in 2014 after 14 years at the state’s fifth biggest shale gas producer.

    Record production from the Marcellus outpaced pipeline building and demand, creating a glut that has pushed prices to half what they were a year ago. Companies responded by reducing the number of wells drilled in Pennsylvania by 40 percent, slashing their capital budgets, closing offices and laying off workers.

    “The prices spooked all of us,” Crockard said about early discussions among him and fellow firm principals Richard Hill, Lindell Bridges and Dave Bradley. “We had to ask, ‘Is this something that will make sense?'”

    He said the technical know-how that his team of former EQT leaders brings will allow Lola to drill and produce cheaply, and that the company won’t carry the heavy debt load that is holding back competitors.

    “We think we’ll weather through it just fine,” Crockard said.
  • EQT to Drill 72 Wells in the Marcellus.  Even as prices for natural gas remain relatively low, EQT Corp. plans to drill 72 more Marcellus Shale wells next year as part of a projected $1 billion in capital expenses.

    Via its Mountain Valley Pipeline, EQT is also one of several firms building pipelines to transport natural gas to market. Projects such as this - as well as ongoing expansions of processing plants operated by Williams Energy, MarkWest Energy, Blue Racer Midstream and others - will be the focus of the 2016 Marcellus-Utica Midstream Conference, set for Jan. 26-28 at the David L. Lawrence Convention Center in downtown Pittsburgh.

    "Midstream" is an industry term used to describe companies that refine and transport gas for drillers. During last year's conference, former Blue Racer CEO Jack Lafield said at least $30 billion worth of additional processing and pipelining infrastructure would be needed to meet demand in the Marcellus and Utica shale regions.

    Over the last year, Williams reached a $37.7 billion deal to become part of Energy Transfer Equity, while MarkWest merged with MPLX in a $20 billion transaction. MarkWest's complexes in both Ohio and West Virginia continue expanding, as do the Williams facilities in Marshall County.

    Moreover, billions of dollars’ worth of pipelines is under construction.

    Those scheduled to speak during the conference include new Blue Racer CEO Stephen Arata, American Petroleum Institute Group Director Robin Rorick, Oil and Gas Resources Chief for the Ohio Department of Natural Resources Rick Simmers and Rice Energy Senior Vice President for Marketing Rob Wingo.
  • PDC Gets Back in the Game in OH.  PDC Energy Inc., which this year suspended its Ohio drilling operations to focus on production in its home state, plans to return to the Utica shale region. The Denver company still will spend no more than 7.5 percent of its 2016 capital budget on Ohio, and that will include some drilling. A year ago, with the oil and gas downturn heating up and companies announcing reduced 2015 capital plans, PDC (NASDAQ:PDCE) said it would spend $38 million in Ohio and idle its drilling rig here in Colorado.
  • NatGas Surpass Coal.  Sustained low prices for natural gas have boosted the fuel's share in the US electricity generation mix, contributing to expectations that gas-fired generation will surpass generation fueled by coal for at least half of the months in 2015, the US Energy Information Administration said Tuesday in its monthly outlook.

    Gas-fired power plants outpaced generation from coal plants for the first time ever in April. The monthly share of generation from gas again exceeded generation from coal in July, August and September, the latest month for which such EIA data is available.

    "For the first time, more electricity is expected to be generated from natural gas than coal for five months in a row from July through November, as sustained low prices for natural gas make it more cost-competitive as a generating fuel," EIA Administrator Adam Sieminski said in a statement Tuesday.
  • It Looks Like Gulfport Is the Big Dog in the Utica in OH. Gulfport Energy Corp. operates 16 wells in eastern Ohio that each produced more than 1 billion cubic feet of natural gas in the third quarter.

    In total, Gulfport's wells pumped out 18.1 billion cubic feet of gas in the period, out of a total 245.7 billion cubic feet produced in the state. Gulfport's 16 best wells made up 7.4 percent of gas production from the state's 1,087 producing wells, according to Ohio data.

    Five other Gulfport wells almost hit the 1 billion mark, each notching above 950 million cubic feet.

    Just 19 other wells reached the 1 billion cubic feet mark from July through September. All but four of them are owned by Rice Energy Inc. (NYSE:RICE), the Pennsylvania driller with the top gas well in the quarter. Ascent Resources, the spinoff of Aubrey McClendon's American Energy Partners LP, owns the other four.

    The secret to Gulfport Energy's (NASDAQ:GPOR) success is a little bit of good fortune when it leased acreage years ago. The Oklahoma City driller's top 47 wells are in Belmont and Monroe counties, widely considered to be the two best counties in Ohio's Utica shale region.

    "Those operating in Belmont and Monroe counties are getting phenomenal dry gas wells," said Shawn Bennett, senior vice president of the Ohio Oil and Gas Association.

    Dry gas doesn't need the processing needed by oil and wet gas, so it can be sent through pipelines for less cost.

    Don't expect such production to continue across the shale region, though. Although Ohio again produced more gas and oil in the most-recent quarter than the one prior, far fewer wells are being drilled here, signaling that production will drop off.

    "We can't continue to believe that natural gas production and oil production are only going to continue to grow in Ohio and that we're somehow impervious to market conditions," Bennett said. "I think that's something that falls on deaf ears."

    For now, though, oil and gas production continues to chug along despite prevalent job cuts and rig count reductions.
  • WV Cracker Could Be Moving Forward.  It appears that the parent company of Braskem, Odebrecht could be resolved its corruption issues in Brazil.  Some think the issues could be resolved in the not too distant future.  If so, Braskem’s cracker plant in WV could be seeing some activity.
  • GE Looking to Buy Halliburton Drilling Assets.  General Electric reportedly is in advanced talks to buy Halliburton's drilling assets as the oilfield services company looks to sell assets to secure regulatory approval for its purchase of Baker Hughes, Kallanish Energy understands.

    Bloomberg reported Wednesday GE is in talks for the drilling assets as it continues to add to its oil and gas unit as part of its return to its industrial core while shedding its banking and finance assets.

    The Justice Department is reportedly requiring Halliburton to sell the $7.5 billion in assets it needs to offload to pass antitrust regulations to a single buyer.  Only conglomerates like GE or Siemens have the financial wherewithal to afford the assets.

    Halliburton hopes to close the Baker Hughes deal in 2016.
  • Two Majors Slash Budgets.  Two of the world’s largest oil companies, ConocoPhillips (COP) and Chevron, announced sharp cuts to their 2016 capital budgets, reflecting the overall poor conditions in the oil and gas industry worldwide.

    ConocoPhillips cut its operating budget 25%, to $7.7 billion from $10.2 billion for 2015.

    The 2016 capital budget is down 25% from 2015’s CAPEX, and off a whopping 55% from 2014’s budget, Kallanish Energy finds.

    By category, capital is allocated with roughly $1.2 billion, or 16%, to base maintenance and corporate expenditures; $3 billion, or 39%, to development drilling programs; $2.1 billion, or 27%, to major projects; and $1.4 billion, or 18%, to exploration and appraisal.

    The largest chunk of CAPEX will be spent in the Lower 48 States. Roughly $2.6 billion, or 34%, is allocated to the Lower 48, a reduction of about 30% compared with 2015 expected spending.

    The decrease primarily reflects improved efficiencies, lower average rig count and lower infrastructure spending in the unconventionals and deflation, according to ConocoPhillips.

    Capital spending in 2016 will focus predominantly on the unconventionals where the company plans to maintain current activity levels with 13 rigs across the Eagle Ford, Bakken and Permian plays.

    “We’re setting an operating plan for 2016 that recognizes the current environment, which remains challenging,” said Ryan Lance, ConocoPhillips CEO. “We are significantly reducing capital and operating costs, while maintaining our commitment to safety and asset integrity. We also retain the flexibility to adjust capital spending in response to market factors.”

    COP also announced it expects to close roughly $2.3 billion of non-core asset sales. Production from these assets, of which 80% is natural gas, accounts for more than 70,000 barrels of oil-equivalent per day (BOE/d) of 2015 production.

    2016 operating costs are expected to be $7.7 billion, compared with $10.5 billion in 2014. When adjusted for $0.8 billion of special items, operating costs are improved by $2 billion compared with 2014 adjusted operating costs of $9.7 billion and $0.5 billion below expected 2015 adjusted operating costs of $8.2 billion.

    As CEO John Watson said earlier this week on CNBC (monitored by Kallanish Energy), Chevron is cutting its 2016 capital budget by 24% from 2015, to $26.6 billion.

    “Our capital budget will enable us to complete and ramp-up projects under construction, fund high return, short-cycle investments, preserve options for viable long-cycle projects, and ensure safe, reliable operations,” Watson said.

    U.S. upstream CAPEX for 2016 will total $5.4 billion, more than 20% of total upstream CAPEX of $24 billion. U.S. downstream CAPEX next year will be $1.6 billion of a total $2.2 billion CAPEX worldwide.

    Watson earlier in the week said Chevron’s CAPEX for 2017 and 2018 would range between $20 billion and $24 billion.
  • Another Deal in the Bakken.  North Dakota's Department of Mineral Resources on Wednesday identified private equity firm Lime Rock Resources as the buyer of Occidental Petroleum's North Dakota oil assets, information Oxy hasn’t disclosed.

    The $600 million sale is expected to close by the end of the month, Kallanish Energy reports.

    The Department of Mineral Resources said Wednesday Oxy had filed paperwork to transfer well bonds to Lime Rock. North Dakota requires bonding for oil wells.

    In the third-quarter earnings conference call on Oct. 28, Oxy CEO Steve Chazen confirmed the asset sale price, but did not identify Lime Rock.

    The deal includes all of Oxy's roughly 300,000 acres in the state, including a 21,000-square-foot, three-year-old regional office.

    Some analysts called Oxy’s transaction a fire sale, as the company, 16th-largest oil producer in North Dakota, determined it had to exit the state.

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Rig Count

  • Baker Hughes Rig Count the week of December 11, 2015
  • PA
    • Marcellus 29 up 1
    • Utica 1 unchanged
  • Ohio
    • Utica 15 down 4
  • WV
    • Marcellus 13 down 1
  • TX
    • Eagle Ford – 76 up 3
    • Permian Basin  170 down 9
  • NM
    • Permian Basin – 34 down 4
  • ND
    • Williston – 58 down 2
  • CO
    • Niobrara – 21 down 2
  • TOTAL U.S. Rig Count 686 down 26

PA Permits for November 19 to December 3, 2015

     County                     Township               E&P Companies

1.    Beaver                      New Sewickley       PennEnergy
2.    Greene                     Washington            EQT
3.    Greene                     Washington            EQT
4.    Greene                     Washington            EQT
5.    Greene                     Washington            EQT
6.    Greene                     Washington            EQT
7.    Greene                      Washington           EQT
8.    Greene                      Washington           EQT
9.    Greene                      Washington           EQT
10.    Lawrence                  North Beaver         Hilcorp
11.    Susquehanna            Brooklyn               Cabot
12.    Susquehanna            Great Bend           SWN
13.    Susquehanna            Great Bend           SWN
14.    Susquehanna            Great Bend           SWN
15.    Susquehanna            Great Bend           SWN
16.    Susquehanna            Great Bend           SWN
17.    Tioga                        Liberty                  SWN
18.    Washington              Nottingham            EQT
19.    Wyoming                  Windham              Chesapeake

OH Permits – weeks ending December 5, 2015

      County                 Township           E&P Companies

1.    Belmont                Richland              XTO
2.    Belmont                York                    Rice
3.    Belmont                York                    Rice
4.    Belmont                York                    Rice
5.    Belmont                York                    Rice
6.    Belmont                York                    Rice
7.    Carroll                   Perry                  Chesapeake
8.    Carroll                   Perry                  Chesapeake
9.    Carroll                   Perry                  Chesapeake
10.    Monroe               Salem                 Statoil
11.    Monroe                Salem                    Statoil
12.    Monroe                Salem                    Statoil

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

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