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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

Utica Upstream
April 6, 2016
Pro Football Hall of Fame
Canton, OH

Upstream PA 2016
April 19, 2016
Penn Stater Inn
State College, PA

Ohio Valley Regional Oil & Gas Expo
April 26-27, 2016
Belmont County Carnes Center
St. Clairsville, OH

Latest facts and a rumor from the Marcellus and Utica Shale

  • Kinder Morgan Moving with OH Pipeline.  Kinder Morgan is moving forward with plans to build a 240-mile pipeline across Ohio to ship propane and ethane to Canada.

    Kinder Morgan wants to build the 12-inch-diameter Utopia East pipeline from Cadiz to the Ohio-Michigan border west of Toledo, where it will connect to an existing pipeline.

    The proposed route crosses parts of Stark, Tuscarawas and Carroll counties. One of two Utopia East pumping stations would be built in southern Carroll near the village of Bowerston.

    Allen Fore, Kinder Morgan’s vice president for public affairs, said the company expects to apply for permits from state and federal regulators within the next few months.

    The $500 million pipeline will have an initial capacity of 50,000 barrels per day of ethane or an ethane-propane mix. The two byproducts of natural gas production are valued in plastics production.

    The pipeline could carry more than 75,000 barrels per day if additional pumping stations are built.

    The ethane and ethane-propane mix is a liquid when pressurized, but becomes a gas when released, Fore said. The pipeline’s maximum operating pressure will be 1,480 psi.

    Pending approval, the project would begin clearing trees at the end of 2016, with the bulk of construction taking place in 2017, Fore said.

    The project is expected to create 1,000 union jobs during construction and 5,000 permanent jobs after it begins operating in the first quarter of 2018.

    Kinder Morgan has permission to survey 95 percent of the pipeline route, and has obtained easements from landowners along a quarter of the route, Fore said.

    NOVA Chemical Corporation has a long-term agreement to use the pipeline to ship ethane and propane from the Utica and Marcellus shales to Windsor, Ontario, but Kinder Morgan looks forward to adding customers along the route, Fore said.

    The project won’t be influenced one way or the other by various plans to build ethane crackers in the Appalachian Basin, he said.

    The pipeline will connect to the MarkWest facility in Cadiz and could be linked to other plants in Scio and Leesville that process natural gas liquids.

    The Ohio Department of Natural Resources, Ohio Environmental Protection Agency, Ohio State Historic Preservation Office, U.S. Fish and Wildlife Service, U.S. Army Corps of Engineers and the Pipeline and Hazardous Materials Safety Administration oversee various aspects of the project.

    Houston-based Kinder Morgan operates or has an interest in approximately 84,000 miles of pipeline and 165 terminals in North America, including the Tennessee Gas Pipeline that crossed Tuscarawas and Carroll counties.
  • Antero Did Well 4th Qtr. 2016.  Natural gas production in the fourth quarter 2015 grew by 18 percent from 2014, but dipped by 1 percent from the previous quarter, Antero Resources reported this week.

    That is due largely to the fact that the Colorado-based driller reduced production in Ohio’s Utica Shale by about 45 million cubic feet per day, said the company, one of the most active drillers in Ohio’s Utica Shale.

    That was done because of the continuing low prices being paid for natural gas and liquids, company officials said.

    The company had said in early 2015 that it would be deferring some well completions because of low prices and needed pipelines.

    Its average net daily gas equivalent production was nearly 1.5 billion cubic feet per day. That total was 78 percent natural gas, 22 percent natural gas liquids like ethane, butane and propane and 2 percent oil.

    The liquids totaled about 55,000 barrels per day, and the 2015 volume jumped by 110 percent from 2014, Antero said.

    The volume of liquids was an 80 percent increase over the fourth quarter 2014 and a 5 percent increase over the third quarter 2015.

    It is expecting to ship the ethane to the Philadelphia area via the under-construction Mariner East II pipeline. Much will be shipped to Sweden, starting in 2017.

    “We had an outstanding quarter and year operationally,” said chairman and CEO Paul Rady in a statement.

    Antero completed and began production on 16 horizontal wells in eastern Ohio in the fourth quarter.

    It is operating three drilling rigs and three completion crews in the Utica Shale.

    As of Sept. 30,  Antero has drilled or started production on 99 horizontal wells in Ohio, all in Noble and Monroe counties, the Ohio Department of Natural Resources says. The firm has another 83 Ohio wells that are being developed.

    Antero also completed its first Utica Shale well in West Virginia.

    The Rymer 4HD well in Tyler County is producing about 20 million cubic feet of natural gas per day in initial flows. The well is producing “encouraging initial production results,” Rady said.

    It is the most southerly dry gas well drilled in West Virginia and will help drillers define the drilling area, officials said.

    Antero also drilled the longest lateral in company history in a Marcellus Shale well: 14,024 feet at the Nova 2H well in West Virginia’s Doddridge County.

    Antero completed 14 horizontal wells in the quarter in the Marcellus Shale in West Virginia and western Pennsylvania.

    It is running seven rigs and four completion crews in the Marcellus Shale.

    In December, the company added the Stonewall gas-gathering pipeline in West Virginia and that has enabled Antero to get higher prices for its natural gas on the Gulf Coast.

    Antero will release its fourth quarter 2015 earnings report on Feb. 24.
  • It’s Happening! Marcellus Shale Ethane to Europe.  Next month, the first shipment of Marcellus Shale ethane will set sail from Marcus Hook to Norway, launching a new export trade for the Delaware River port that is being hailed as a boost to the gas industry, local maritime interests, and European manufacturing.

    The vessels that will carry ethane from Marcus Hook to Europe are being run by the company INEOS. One of them is called the INEOS Insight. These will be routinely sighted on the Delaware River in the coming years.
  • WV – VA Pipeline Moving Forward.  Columbia Pipeline Group said that its Columbia Gas Transmission unit has filed with the Federal Energy Regulatory Commission (FERC) to move forward with its $850 million WB Xpress project.

    WB Xpress is an interstate pipeline between West Virginia and Virginia that includes roughly 26 miles of pipeline replacement and approximately three miles of new line, along with two new compressor stations. Line capacity will top off at 1.3 billion cubic feet per day (Bcf/d), Kallanish Energy learns.

    The project will deliver Appalachian Basin gas to Mid-Atlantic markets, as well as Gulf Coast markets via a downstream, third-party interstate pipeline expansion from an existing interconnect in West Virginia.

    Columbia says WB Xpress “will significantly improve the service and flexibility of the region’s interstate pipeline system.”

    Pending FERC authorization, Columbia expects to begin WB XPress construction in 2017, and bring the project online in the second half of 2018.

    FERC also authorized Columbia Gas Transmission to construct/operate the $45 million, 205 million cubic feet per day (MMcf/d) capacity Utica Access Project in Kanawha County, West Virginia.

    Utica Access includes five miles of new pipeline, modifications to existing compression facilities and enhancing safety technology to more closely monitor the pipeline system.

    The line, slated to be completed in the fourth quarter, will flow Utica Shale gas to the Columbia Gas Appalachia Pool.
  • EIA Bullish on NatGas Prices in 2017.  Consumption growth, primarily from the industrial sector, will cause natural gas spot prices to jump 21.5% in 2017, according to the latest Short-Term Energy Outlook (STEO) from the U.S. Energy Information Administration.

    Forecast Henry Hub spot prices average $2.65 per million BTU (MMBTU) in 2016 and $3.22/MMBTU in 2017, compared with an average $2.63/MMBTU in 2015, Kallanish Energy finds.

    “Although annual average prices for 2015 and 2016 are similar, prices are forecast to rise through much of 2016, from prices that began the year near $2/MMBTU,” STEO reported.

    EIA expects production growth will be relatively flat in 2016, partly in response to lower prices and declining rig activity. With higher prices in 2017, and as new consumption and more export capacity comes online, EIA projects production will pick up slightly.

    The information administration’s forecast of U.S. total natural gas consumption averages 76.6 billion cubic feet/day (Bcf/d) in 2016, and 77.2 Bcf/d in 2017, compared with 75.5 Bcf/d in 2015.

    Increases in industrial sector consumption drive total consumption growth in 2016 and 2017, STEO reports. Industrial sector consumption of natural gas increases by 3.5% in 2016 and 2.5% in 2017, as 10 new projects in the fertilizer and chemicals sectors come online.

    EIA expects a 0.1 Bcf/d (0.3%) decline in consumption of natural gas for power generation in 2016, and a 1.4% decrease in 2017. Natural gas consumption in the residential and commercial sectors is projected to increase in 2016 and 2017, reflecting slightly higher heating demand.

    Total marketed production averaged 79.1 Bcf/d in 2015, an increase of 4.2 Bcf/d (5.7%) from 2014. EIA projects growth will slow to 0.7% in 2016, as low natural gas prices and declining rig activity begin to affect production.

    “In 2017, however, forecast production growth increases to 1.8%, as forecast prices rise and more demand comes from the industrial sector and liquefied natural gas (LNG) exporters,” according to EIA.

    Although demand growth levels off, production remains high, which is expected to reduce demand for natural gas imports from Canada and to support growth in exports to Mexico.
  • New Player in the Permian and Eagle Ford.  Houston, Texas-based producer start-up Invictus Energy said Wednesday it has secured $150 million via an equity commitment from private equity firm Kayne Anderson and company management.

    The start-up will pursue lease and drill opportunities in North America, beginning in the Permian Basin and the Eagle Ford Shale play, Kallanish Energy learns.

    The management team of Invictus includes ConocoPhillips and Rosetta Resources alumni. Rosetta was acquired last July by Noble Energy for $2.1 billion.

    “We look forward to forming a partnership with a highly talented management team and are excited for Invictus to begin capitalizing on attractive opportunities in the current environment using the unique knowledge and insight management has developed through its extensive industry experience,” said David Habachy, managing director at Kayne Anderson.

    Invictus is the latest case of small energy upstarts looking to take advantage of cheap land and infrastructure assets expected to hit the market in large volumes this year.

    It’s interesting that no matter how low oil goes there continues to be new players coming in the industry.
  • Economics & Opportunities in the Permian in 2016.  (Thanks, HIS)  In an energy market struggling from oil price declines and anemic financial returns, the Permian Basin is the only U.S. unconventional liquids resource seeing significant year-over year, per-well productivity gains. The Permian is single-handedly helping to sustain activity and has caused the region to become a hotbed of consolidation, according to new analysis from IHS.

    According to the IHS Energy North America Supply Analytics report entitled The Permian Basin—Need for Improved Economics and Opportunities Drive Consolidation, peak productivity in the Permian Basin has improved by more than 40 percent since third-quarter 2014, led primarily by the Bone Spring play.

    This performance has not gone unnoticed by either operators or the markets, the IHS report noted, with the markets showing a preference for Permian deals. In 2015, more than 35 percent of deals were focused on the Permian Basin.

    “More than 1,000 operators have generated new volumes from the Permian since January 2014, but just 10 operators are responsible for more than 50 percent of the combined liquids production in the play,” said Reed Olmstead, senior manager – North America Supply Analytics Service at IHS Energy. “At the other end of the spectrum, more than 650 operators are generating less than 3,000 barrels per day in the play. Due to the performance of the play and the interest and activity in it, IHS expects consolidation to increase in the play before the second half of 2016, and that consolidation in the Permian will occur at a greater rate than in other domestic plays. Operators are looking to focus their money on areas that can generate economic returns at depressed oil prices, and the Permian keeps rising to the top when you look at cost and performance. Permian deals skyrocketed in 2015, passing all other plays.”

    Considering all Permian deals, the Midland Basin of the Permian has seen slightly higher 1P reserve valuations recently, bringing the play average up from $13 per 1P (proven) barrel of oil equivalent (BOE) of reserve to nearly $18. By contrast, the IHS report said, Eagle Ford 1P reserves have seen recent valuations closer to $15 per BOE. The “Permian Premium” indicates the upside expected from the play, as productivity continues to increase.

    “Premiums do not appear to have topped out, meaning companies looking to do business in the basin may pay even higher prices in the future,” Olmstead said.

    The result of increasing consolidation in the play, he said, will be a net reduction in capital spent, but higher productivity levels, as remaining operators will be able to achieve greater capital efficiencies. Additionally, individual operators will have more acreage for high-grading opportunities and will employ cost efficiencies across a greater inventory of new wells, generating improved returns.

    “Generally speaking, smaller operators have more challenged economics than larger operators, largely due to the ability of larger operators to leverage operational and cost efficiencies across a greater acreage and production base,” said Jerry Eumont, managing director, North America Supply Analytics Service at IHS Energy, and a co-author of the Permian Basin consolidation analysis. “We anticipate that much of the activity in the coming months will be driven by operators of all sizes, who are already operating in the basin, but focused on leveraging acquisition attempts for a variety of strategic purposes.”

    Apache, the IHS report said, continues its transition to focusing more on Permian unconventionals, while Pioneer splits its focus on its Permian and Eagle Ford assets. Devon, despite its position in the Barnett and Eagle Ford, promotes activity in the Permian, though with below-average productivity. With the sustained drop in oil prices, operators with a greater presence in the basin appear poised to acquire smaller, pure-play operators, the IHS report noted, but IHS also expects new entrants to be active.

    More than 185,000 wells produce from the Permian basin, according to IHS, with nearly 18,000 horizontal wells. ”The Permian Basin covers a vast geographic footprint, however, the large number of well bores leads to few, if any, truly new production bases,” Eumont said. “With so little acreage not held by production, any operator looking to enter the basin will have but one method to execute that strategy—acquisition. But they may not want to wait long, since premiums do not appear to have topped out, which means companies looking to do business in the basin may pay even higher prices in the future.”

    IHS Energy has recently examined activity and outlook for other emerging plays or sub-basin in the Permian, including the Wolfcamp Delaware in its IHS Energy Wolfcamp Delaware Review, and the Midland Basin in its IHS Northern Midland Basin Company Play Analysis.
  • Now Europeans questioning Halliburton – Baker Hughes Deal.  The European Commission (EC) said on Tuesday it has launched an in-depth investigation into Halliburton’s planned roughly $35 billion purchase of its oilfield services rival Baker Hughes (BHI).

    The EC said its probe would assess whether the move “would impede effective competition in breach of the EU merger regulation.”

    Halliburton offered in November 2014 to buy Baker Hughes in a cash and stock deal, creating an oilfield services behemoth to take on market leader Schlumberger as customers cut spending due to plunging oil prices.

    EU Competition Commissioner Margrethe Vestager said the commission must ensure any merger “would not reduce choice or push up prices for oil and gas exploration and production services in the EU.”

    Halliburton expressed confidence the deal between the No. 2 and No. 3 companies in the oilfield services industry would clear regulatory hurdles, Kallanish Energy learns.

    However, the two companies said last month U.S. antitrust officials were dissatisfied with proposed concessions.

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

Rig Count

  • Baker Hughes Rig Count the week of January 15, 2016
  • PA
    • Marcellus 26 up 1
    • Utica 0  
  • Ohio
    • Utica 13 down 1
  • WV
    • Marcellus 12 unchanged
  • TX
    • Eagle Ford – 68 down 3
    • Permian Basin  172 down 5
  • NM
    • Permian Basin – 30 down 2
  • ND
    • Williston – 47 down 2
  • CO
    • Niobrara – 17 down 2
  • TOTAL U.S. Land Rig Count 624 down 13

PA Permits for January 7, to January 14, 2016

        County           Township    E&P Companies

1.    Armstrong         Manor         Exco
2.    Susquehanna    Jessup        Cabot
3.    Susquehanna    Jessup        Cabot
4.    Susquehanna    Jessup        Cabot
5.    Susquehanna    Jessup        Cabot
6.    Susquehanna    Jessup        Cabot
7.    Susquehanna    Jessup        Cabot
8.    Susquehanna    Jessup        Cabot
9.    Susquehanna    Jessup        Cabot

      County         Township    E&P Companies

1.    Belmont        Putney       XTO
2.    Belmont        Mead         XTO
3.    Guernsey      Mill            Eclipse Resources

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Northeast Supply Enhancement