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Expo/Industry events for the next few months

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

  • The Not So Fast Shale Bust.  Shale patches in the U.S. are pumping out more oil and gas than the government previously thought.A total 184,000 barrels a day of shale oil output were added to the Energy Information Administration’s estimate for February in its monthly Drilling Productivity Report. The agency also raised its estimate for natural gas production from the Marcellus region by 4.2 percent.

    While American drillers have idled more than two-thirds of their oil and gas rigs since October 2014, production has been resilient thanks to techniques that allow them to pump more from each well.

    As a consequence, a much anticipated decline in stockpiles is yet to be seen. U.S. crude inventories climbed above 500 million barrels to the highest level since 1930 in the week ended Jan. 29, according to EIA data.

    The EIA last week said it was revising the models it uses to estimate output in the report. Last month, the EIA said it expected the seven major shale formations in the U.S. to produce 4.83 million barrels of oil a day in February. This week’s report raised that estimate to 5.02 million. The agency last month expected the Marcellus to pump out 15.2 billion cubic feet of natural gas this month. That was revised to 15.9 billion.

    Even with the revisions, the agency sees oil output from shale on a long downward trajectory as companies cut spending and drill fewer wells. In March, the EIA expects oil output to decline 92,000 barrels a day to 4.9 million, which would be the lowest level since August 2014.
  • Is Chesapeake Dancing with Bankruptcy?  Chesapeake Energy (CHK) Monday morning issued a terse, two-sentence statement trying to assuage fears the independent producer had hired restructuring experts Kirkland & Ellis and the possibility of a bankruptcy filing, Kallanish Energy reports.

    “Kirkland & Ellis has served as one of Chesapeake’s counsel since 2010 and continues to advise the company as it seeks to further strengthen its balance sheet following its recent debt exchange,” Chesapeake said in the release.

    “Chesapeake currently has no plans to pursue bankruptcy and is aggressively seeking to maximize value for all shareholders.”

    Trading in the company’s shares (ticker symbol “CHK”) was halted eight times Monday morning, for volatility in trading, once for the press release, and also for volatility that tripped a market circuit breaker.

    Over the weekend, reports stated industry watchers were speculating whether Chesapeake could cover a $500 million note due in March.

    Chesapeake shares, in between trading stopped and started during the morning, sunk to trade in the $1.51 to $2.22 a share range. CHK shares have fallen 55% YTD and 90% over the past year.

    Sterne Agee CRT energy analyst Tim Rezvan wrote in a flash research note Monday he believes CHK shares’ underperformance is warranted “given a slew of negative data points.”

    The points include: multiple media reports since Saturday reiterating well-understood near-/medium-term liquidity risk; weak price action in Chesapeake credits Monday; and acknowledgment by the marketplace lending banks will be more cautious when lending to highly levered E&Ps like Chesapeake.

    “Macro and company-specific risks continue to plague Chesapeake, and we remain Neutral on CHK shares as we see little chance of a sustained $3/Mcf [thousand cubic feet] gas price healing the balance sheet this year,” Rezvan wrote.
  • Boone’s Out of Oil.  He’s been wrong lately.  Will he be right now? T. Boone Pickens, who made his mark and name pursuing some of the U.S.’s biggest oil producers over the past 40 years, has sold off all his oil holdings.

    Pickens has sold all his oil stocks and is waiting for the best moment to get back in, he said last week in an interview on “Bloomberg Go,” the Orange County Register reported.

    With crude prices hovering in the $30 a barrel (Bbl) range, Pickens said mid-size U.S. oil companies such as Pioneer Natural Resources, Anadarko Petroleum and Apache are acquisition targets for larger players like ExxonMobil.

    Crude prices are down 70% in 19 months, but Pickens said $100 billion in capital expenditure cuts – with more expected this year – should lead to an oil production drop, which would boost oil prices to the $50/Bbl to $60/Bbl range by the end of the year as long as the economy doesn’t enter a recession, Pickens said.

    “The low is in,” he said. “Just don’t get in a rush here. You’re going to have plenty of opportunity. The market is going to be volatile. It’s not going to go straight up, so there will be good entry points.”

    Pickens said he won’t start investing again until crude inventories fall, Kallanish Energy understands. In the U.S., commercial stockpiles now stand at more than 500 million barrels for the first time since 1930, at the height of the East Texas oil boom.

    “I will not re-enter, I’m sure, until we start to draw on inventories,” Pickens said.
  • What Will a New Investor Mean for SWN?  Norwegian hedge fund executive and entrepreneur Andreas Halvorsen since Jan. 1, has acquired 35.52 million shares, 9.2%, of independent U.S. producer Southwestern Energy.

    Halvorsen founded Viking Global Investors in 1999, which currently manages more than $30 billion for investors.

    Southwestern is the third largest producer of natural gas in the Lower 48 States. The Houston, Texas-based company has a market cap of $34 billion and an enterprise value of $7.99 billion, Kallanish Energy understands.
  • NatGas Generates More Electric Power Than Ever.  Natural gas consumption this winter in the electric power sector (gas burn) has been higher than in any previous winter, the U.S. Energy Information Administration reports.

    Based on Bentek Energy data, EIA Tuesday said gas burn in the electric power sector has averaged 25 billion cubic feet per day (Bcf/d) from Nov. 1, through Feb. 8, up 17% from last year’s average of 21.4 Bcf/d during the same period, and much higher than the 18.8 Bcf/d five-year average.

    “Low natural gas prices have been the primary driver of increasing natural gas use for power generation, although reductions in coal capacity and the availability of efficient gas-fired generating units have also played a role,” EIA said.

    On an annual average basis, the electric power sector is the largest consumer of natural gas, using more than the industrial, residential and commercial sectors, Kallanish Energy reports.

    While natural gas consumption in the power sector peaks during the summer — when electricity demand is highest — the power sector’s natural gas consumption during the winter has been rising as more generation switches to gas and more households rely on electricity as a main heating source.

    Spot natural gas prices at Henry Hub in Louisiana, the U.S. benchmark, averaged $2.61 per million British thermal units (MMBtu) in 2015 — the lowest annual average level since 1999.

    In addition to lower natural gas prices, improvements in the efficiency of new natural gas plants are helping to increase the economic attractiveness of dispatching gas-fired generation. In 2015, about 40%, 6,200 megawatts (MW), of all new utility-scale plants of 1 MW or greater were natural gas-fired plants.

    Another factor in the increasing gas burn is the growing number of coal plant retirements. Preliminary reports indicate nearly 15,000 MW of coal-fired capacity was retired last year.
  • Governor Delusional.  Wolf Wants to Stop Whatever Drilling Is Left in PA.  Gov. Tom Wolf upped his proposed tax on natural gas drillers in the state to 6.5 percent – a somewhat unusual idea given Pennsylvania legislators' failure to agree on his 5 percent extraction tax proposal for the current fiscal year.

    NPR reports the 6.5 percent could bring in more than $200 million in revenue in its first fiscal year.

    Pennsylvania now charges a per-well “impact fee” on natural gas drillers, which has been reduced this year because of low gas prices. In the past the impact fee raised an average of $225 million a year, most of which went to local communities impacted by drilling. In this proposal, impact fee funds for gas drilling areas would remain intact, but instead of a per-well fee the money would come out of the 6.5 percent tax. That revenue is estimated at $133.1 million, and is in addition to the $217.8 million expected for the general fund. Total projected revenue generated from a 6.5 percent shale gas tax would be $350.9 million for FY 2016/2017. These estimates jump each year, reaching $507 million for the general fund by 2020/21.

    But state lawmakers, as well as members of the natural gas industry, claim Wolf's proposal will have a negative impact on Pennsylvania. Natural gas production has slowed in the state, meaning the 6.5 percent tax won't bring in as much money as the current estimates suggest and it could increase the number of job losses in the waning industry.

    "There couldn't be a worse time for additional energy taxes," said Marcellus Shale Coalition President David Spigelmyer in a statement. "New taxes, coupled with duplicative and onerous regulations, will only exacerbate the difficult fiscal challenges facing the natural gas industry..."

    As lawmakers' attention shifts to the next fiscal year's budget, Pennsylvanians are still waiting for a final budget for the current fiscal year.
  • Halliburton to Sell More Baker Hughes Units.  Oilfield services giant Halliburton reportedly is adding more assets to the list of businesses it plans to sell to appease antitrust regulators who’ve been stalling its deal to acquire smaller rival Baker Hughes.

    Halliburton plans to divest Baker’s offshore drilling-and-completions fluids division and the bulk of Baker’s completion systems, unnamed people familiar with the situation told Bloomberg.

    The units join numerous other overlapping business lines Halliburton has said it will sell to placate the U.S. Department of Justice’s concerns that the deal calls into question antitrust issues, Kallanish Energy understands.

    Halliburton CEO Dave Lesar told analysts and investors on a conference call last month the companies presented a new divestment plan to the Justice Department earlier in January to sell more assets. He declined on the call to name which units.

    Halliburton agreed to buy Baker Hughes in November 2014, in a cash-and-stock deal that at the time was valued at roughly $35 billion. The transaction was scheduled to close last year, but has been delayed to no later than April 30, as the companies seek to resolve antitrust concerns in the U.S. and abroad.

    Halliburton had already agreed to sell Baker’s so-called core completions business, which provides equipment for controlling the flow of oil as it’s readied for production.

    When the deal was announced, Halliburton said it planned to divest assets that generate as much as $7.5 billion in annual revenue to win antitrust approval.

    The units publicly announced for sale amount to about $5 billion in 2013 revenue, the benchmark year the companies are using for the threshold.

    The total package could increase to $10 billion in revenues, James West, an analyst at Evercore ISI, wrote last month in an investors’ note.
  • Industrial NatGas Consumption to Increase in 2016 and 2017.  U.S. total natural gas consumption will average 76.4 billion cubic feet/day (Bcf/d) in 2016, and 77.3 Bcf/d in 2017, compared with 75.4 Bcf/d in 2015, the U.S. Energy Information Administration’s February edition of its Short-Term Energy Outlook projects.

    Increases in industrial sector consumption drive total consumption growth in 2016 and 2017, according to the outlook, known as STEO, Kallanish Energy reports.

    “Industrial sector consumption of natural gas increases by 3.3% in 2016, and 2.3% in 2017, as new projects in the fertilizer and chemicals sectors come online,” STEO states.

    EIA expects a 0.1 Bcf/d (0.2%) decline in consumption of natural gas for power generation in 2016, and a 0.9% decrease in 2017. Natural gas consumption in the residential and commercial sectors is projected to increase modestly in 2016 and 2017.

    STEO reports marketed natural gas 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 2%, as forecast prices rise, industrial demand grows, and liquefied natural gas (LNG) exports increase.

    Production of dry natural gas is forecast to grow by 0.4% in 2016 and by 2.0% in 2017. EIA expects U.S. production growth in the forecast period will reduce demand for natural gas imports from Canada and will support growth in exports to Mexico.

    EIA projects LNG gross exports will increase to an average of 0.5 Bcf/d in 2016, with the start-up of Cheniere Energy’s Sabine Pass LNG liquefaction plant in Louisiana planned for early this year. EIA projects gross LNG exports will average 1.3 Bcf/d in 2017, as Sabine Pass ramps up its capacity.

    Monthly average Henry Hub spot prices are forecast to rise through 2016, but remain lower than $3/MMBtu until December. Forecast Henry Hub natural gas prices average $2.64/MMBtu in 2016 and $3.22/MMBtu in 2017.
  • EIA Projects LNG Growth in in 2016 and 2017.  The U.S. Energy Information Administration projects liquids production at U.S. natural gas processing plants will increase by 5.7%, or 0.2 million barrels per day (MMBPD) in 2016, and 0.3 MMBPD (8.9%) in 2017.

    Expected additions of natural gas processing and distribution infrastructure contribute to forecast liquids production growing at a faster pace than the natural gas streams from which it’s produced, EIA’s February edition of the Short-Term Energy Outlook (STEO) stated.

    EIA expects higher ethane recovery rates in 2016 and 2017, following planned increases to petrochemical plant feedstock demand in the U.S. and abroad, Kallanish Energy learns.

    “Planned terminal builds and expansions and a growing ship fleet allow more U.S. ethane, propane, and butanes to reach international markets, with forecast net [liquids] exports averaging 1.1 MMBPD in 2016, and 1.3 MMBPD in 2017,” according to STEO.
  • New Crude Oil Transmission Pipeline in the Bakken.  Summit Midstream Partners announced today that it has commenced operations of the Stampede Lateral crude oil transmission pipeline in North Dakota and is currently in the final stages of completing the nearby Little Muddy crude oil transmission pipeline, which includes an interconnect with Enbridge's North Dakota Pipeline System.  These crude oil development projects provide customers on the Polar & Divide gathering system with two new delivery points and enhanced optionality to access additional downstream markets via rail and pipeline infrastructure.  Prior to commissioning these projects, crude oil on the Polar & Divide system was delivered exclusively to the Colt Hub rail terminal in Epping, North Dakota.

    The Stampede Lateral connects SMLP's Polar & Divide crude oil gathering system with Global Partners LP's ("Global") Basin Transload rail terminal located near Columbus, North Dakota. The Stampede Lateral provides Global and other producers in the region with up to 60,000 bbls/d of crude oil throughput capacity.  The 46-mile, 10-inch diameter transmission pipeline originates at SMLP's newly-built, Divide Station, which offers truck unloading capabilities and 75,000 barrels of crude oil storage capacity.  The Stampede Lateral is underpinned by a long-term, fee-based contract with Global, including minimum volume commitments.  Crude oil on the Stampede Lateral is delivered to Global's Basin Transload rail terminal which offers single line haul rail access to Global's Albany, New York terminal.
  • New Man in West Texas.  Anadarko Petroleum Corp. is set to open a new workforce housing facility, akin to what has been dubbed a man camp, in West Texas near El Paso.

    The 77,180-square-foot facility, located in Mentone, Texas, is capable of housing 200 Anadarko employees and contractors, according to a statement from Anadarko's general contractor and property manager Target Logistics, which has its operational headquarters in The Woodlands.

    The timing counters the trend of man camps in the Bakken and Utica shale plays turning into ghost towns as cash strapped oil and gas companies wind down their drilling activities.

    In September, vacancy rates in Williams County, North Dakota — in the heart of the Bakken — reached 70 percent, according to a Bloomberg report.

    To maintain production in the Eagle Ford, producers made use of hotels in the region, although Houston-based Halliburton did cancel its extended-stay contract with InstaLodge Hotel & Suites in Cotulla in the first half of 2015.

    But Anadarko sees prospects in the Delaware Basin in West Texas.

    "We have about 600,000 gross acres in the most prospective area of the Delaware Basin, estimated recoverable resources of more than 1 billion barrels of oil equivalent," said Stephanie Moreland, spokesperson for Anadarko. "The new facility provides quality accommodations for our current number of employees and contractors, and we have the flexibility to expand in an improved commodity-price environment to support potential growth in future years."

    The Delaware Basin — a formation that stretches between West Texas and New Mexico — represents a "significant source of future growth" for Anadarko, Moreland said.
  • North America Self-Sufficient in NGLs by 2019.  North American gas, crude and natural gas liquids (NGLs) production will jump nearly 48% between 2015 and 2020 – with the continent becoming liquids self-sufficient in 2019 – according to Rystad Energy.

    Total gas production will reach 67.9 billion cubic feet-equivalent per day (Bcfe/d) in 2020, up 20.3 Bcfe/d, or 42.6% from 2015’s 47.6 Bcfe/d, the Norwegian consulting/data firm projects.

    Crude production will increase 53.8%, to 8 million barrels of oil-equivalent per day (MMBOE/d) in just four years, from 5.2 MMBOE/d in 2015, while NGLs production will grow by half, to 3 MMBOE/d, from 2 MMBOE/d.

    The huge production jumps occur despite in 2016 — for the first time ever — the North American shale gas and tight oil production will remain flat, year-over-year.

    The reason is large cutbacks in capital investment, according to Rystad. “Total North American shale investments decreased by over 42% in 2015, year-over-year; in 2016, the investments are anticipated to fall by another 35%,” Rystad reported this week.

    The compound annual growth rate (CAGR) in production from shale plays between 2015-2017 is just 2%, coming off a CAGR of 33% between 2010 and 2015, Kallanish Energy learns. CAGR increases to 12% 2018-2020.

    From total hydrocarbon production of roughly 15.2 MMBOE/d in 2015, North American production is projected to grow to approximately 22 MMBOE/d in 2020, according to Rystad.

    Total investment in North American tight oil and shale gas plays peaked at roughly $170 billion in 2014. Due to the oil price crash, investments dropped to just below $100 billion last year.

    “We [Rystad] forecast that in 2016, investments will drop an additional 35% and will amount to approximately $60 billion.”

    Total North American shale investment will trend upward beginning in 2017, growing on average by roughly 30%, with the 2014 investment level not expected to be reached again before 2020.

    Rystad sees the largest plays in terms of investment this year are the Eagle Ford ($11 billion), Permian Midland ($7 billion), Bakken ($7 billion) and Permian Delaware ($7 billion).

    Next in terms of investment are the Marcellus ($6 billion), Niobrara ($4 billion) and Montney in Canada ($4 billion in investment)

    North America in 2019 reaching liquids self-sufficiency will have worldwide impacts, according to Rystad.

    “This will have large geopolitical impacts as OPEC countries will have to gradually divert their exports from the U.S. towards Asia,” the consulting/data firm said. “However, heavy crude oil may still be imported as Gulf Coast refineries provide a large portion of the world’s capacity to refine heavy crudes.”
  • Williams Signs Deal for the Gulf.  Williams Partners said that it signed long-term contracts with two unnamed shippers for Gulf Connector, a roughly 475 million cubic feet per day (MMcf/d) expansion of the Transco pipeline system to connect gas supplies to liquefied natural gas facilities.

    Gulf Connector will deliver gas to Cheniere Energy’s Corpus Christi (Texas) liquefaction project and to an unnamed shipper to Freeport LNG Development’s liquefaction project near Freeport, Texas. Both facilities are under construction, Kallanish Energy reports.

    The Gulf Connector project involves adding compression and making the natural gas flow bi-directional on a portion of the Transco system between Louisiana and South Texas. It’s designed to provide firm transportation from Transco’s Station 65 in St. Helena Parish, Louisiana, to interconnects with proposed header pipelines in Wharton County, Texas and San Patricio County, Texas.

    Cheniere’s Corpus Christi export terminal is designed with up to five liquefaction “trains” (two under construction) with production capacity up to 22.5 million tons per annum (MTPA) of LNG. Trains 1 and 2 are expected to become operational in late 2018 and mid-2019, respectively.

    The Freeport LNG export terminal will have three liquefaction trains with projected export capacity of 15.3 MTPA. The facility is also planned to commence operations in phases between September 2018, and August 2019.
  • Pioneer Backpedals in the Permian.  Independent producer Pioneer Natural Resources, which has been one of the brighter spots in U.S. oil and gas production, on Wednesday canceled a capital budget increase and stopped drilling in one play following a fourth-quarter loss.

    While Pioneer (PXD) had 24 rigs working at the end of 2015, the company plans to have only 12 online by the middle of 2016, all in the Permian Basin, and will pull all six rigs out of the Eagle Ford Shale play, Kallanish Energy understands.

    The company is cutting its 2016 capital budget (CAPEX) to $2 billion, down from an original forecast of up to $2.6 billion and from $2.2 billion in 2015, the company said.

    The cutback at Pioneer is in response to the continued decline in commodity prices. The price of crude is down roughly 70% since June 2014.

    The company reported a fourth-quarter net loss of $623 million, compared with profit of $431 million a year earlier.

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

Rig Count

  • Baker Hughes Rig Count the week of February 11, 2016
  • PA
    • Marcellus 17 down 2
    • Utica 0  
  • Ohio
    • Utica 13 unchanged
  • WV
    • Marcellus 12 unchanged
  • TX
    • Eagle Ford – 58 down 2
    • Permian Basin  151 down 5
  • NM
    • Permian Basin – 21 down 3
  • ND
    • Williston – 39 down 3
  • CO
    • Niobrara – 16 down 3
  • TOTAL U.S. Land Rig Count 545 down 46

PA Permits for February 4, to February 11, 2016

       County              Township      E&P Companies

1.    Butler                 Clearfield       XTO
2.    Washington        Nottingham    EQT
3.    Washington        Nottingham    EQT
4.    Westmoreland    Salem           Apex Energy
5.    Westmoreland    Salem           Apex Energy

OH Permits for week ending February 6, 2016

        County       Township    E&P Companies

1.    Carroll         Center            Rex
2.    Carroll         Center            Rex
3.    Jefferson     Ross              Chesapeake
4.    Jefferson     Ross              Chesapeake

Joe Barone 610.764.1232
Vera Anderson 570.337.7149


Utica Summit 2019