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Expo/Industry events for the next few months

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

Utica Midstream
June 8, 2016
Pro Football Hall of Fame
Canton, OH

Latest facts and a rumor from the Marcellus and Utica Shale

  • Upstream PA 2016.  I want to thank our sponsors Sourcewater, Wampum Hardware, Allison Crane and & Rigging Wampum Hardware Co. and Strata Products Worldwide and our speakers, Domenic Corso, Sourcewater,; Dave Spigelmyer, Marcellus Shale Coalition,; Matt Hoza, BTU Analytics,; Michael Schaal, EIA,; Matt Henderson, Henderson Consulting,; Bill desRosiers, Cabot Oil & Gas,; Rob Boulware, Seneca Resources,; Sarah Battisti, Southwestern Energy and Cindy Ivey, Williams.  It’s an impressive list of speakers who provide real insight in the current state of the industry.

    A couple of the facts from the seminar:
    • There are 8972 unconventional wells in PA
      • 800 shut in
      • 766 drilling not completed
      • 551 inactive
    • 6805 unconventional wells are producing NatGas in PA
    • These wells produce 390 billion cu. ft. of NatGas monthly
      • 4.5 trillion cu. ft. annually
      • 20% of the total U.S. production
    • Seneca Resources has reduced its operating rigs from 3 to 1
    • Cabot’s rig count has also gone from 3 to 1
    • BTU Analytics and Energy Information Administration both expect the price of NatGas to be around $3.50 by the 4th quarter.
    • The Marcellus operators sell NatGas at deep discounts.  The average selling price per MMBTU in March 2016 was $1.15 which is probably about 60% below Henry Hub price.  Marcellus producers really need the pipelines to see any increase in prices well head.
  • Utica Producers Focusing on DUCs.  Producers in eastern Ohio’s Utica Shale play will focus during 2016 on getting their “DUCs,” drilled but uncompleted wells, into production, rather than spud new wells, a Wood Mackenzie analyst said Wednesday.

    “There are 150 to 250 drilled but uncompleted [DUCs] wells in the Utica,” according to Maria Cortez, a Wood Mac analyst focused on Upstream activity in the Lower 48 States. “Those wells will be completed before new wells are drilled.”

    Cortez kicked off the day-long Utica Upstream Conference, held at the Pro Football Hall of Fame in Canton, Ohio, produced by the Canton Regional Chamber of Commerce and Kallanish Energy was in attendance.
  • INEOS Selling More from Marcus Hook, PA.  We reported that INEOS was transporting Marcellus NatGas to its cracker plant in UK.  We’ve learned that it’s also selling NatGas to cracker plants in Norway. (RUMOR)  
  • SABIC Buying Marcellus NatGas.  Sabic which is Saudi Arabian company is buying Marcellus Shale ethane from INEOS for its cracker plants in Europe.  Who would have thought this would every happen?  (RUMOR)
  • PA Cuts CO2 30% (Forbes).  Thanks to the mighty Marcellus shale play, Pennsylvania’s natural gas production has boomed nearly 30-fold since 2005. At over 16 billion cubic feet per day (Bcf/day), the Marcellus, also being developed in West Virginia, now produces more gas than all of Canada. Our shale revolution is even more remarkable because it has generally come in spite of lower prices, a problem that obviously makes producing energy more difficult.

    Rising shale has also led to a natural gas power generation revolution in once coal-dominant Pennsylvania. Electricity is a baseload demand market that usually comprises 40-45% of a state’s energy usage. The Keystone State has extended its gas capacity to about 12,200 megawatts (MW), up from 9,400 MW in 2010.

    Unfortunately, with many coal plants coming offline, Pennsylvania’s overall power capacity has actually fallen from about 46,000 MW back in 2009 to 42,000 MW today. Thus, as a growing economy and population where power shortages mean more blackouts, the nearly $15 billion now being invested in new gas plants in Pennsylvania is crucial. Pennsylvania will see most of the 10,000 MW of coal capacity retired nationally 2016-2017 (here).

    Pennsylvania’s natural gas boom has had the measurable benefit of lowering total CO2 emissions in the state’s power sector by about 30%, a very important development because it’s absolute emissions that are required to tackle Climate Change. As for unit of electricity produced, Pennsylvania has evolved from emitting about 1,300 pounds of CO2 per MWh in 2005 to just 910 pounds today, another example of why anti-fracking positions make little environmental sense.

    So, despite not being blessed with the great sunshine and wind areas that California has, Pennsylvania has been lowering its CO2 emissions rate faster with shale gas. And California: has power rates that are about 40% higher, has a very expensive regulation of 50% RPS by 2030, and is forced to import 33% of its power. And also in stark contrast: California imports over 90% of its natural gas, while Pennsylvania supplies the clean energy source to surrounding states, like New York (here).

    Pennsylvania does have an Alternative Energy Portfolio Standard, which calls for 18% all energy generated in the state come from alternative and renewable sources by 2021, including a very realistic 0.5% from solar. The standard “only requires renewable energy to account for about half of the total requirement.”
  • Shell Working with Beaver County, PA Boy Scouts.  Shell met with a local  Boy Scout troop and asked them to build 750 picnic tables which Shell will use for a couple of years.  Then, Shell will give the picnic tables  received to local parks. The troop’s names will be branded on the tables that they build. (RUMOR)

    This is probably the best indicator yet that Shell will be going forward with the cracker plant.  Shell would not want to back out of the arrangement with a local Boy Scout troop.  It’s not worth the negative “press.”
  • Consol Bullish on 2 Cracker Plants.  The global crash in oil prices and resulting squeeze in financing available to energy companies have raised questions about whether two companies will build ethane cracker plants in the Marcellus and Utica shale regions.

    The head of one of the top shale gas producers in the area, however, predicts both petrochemical facilities will be built in the next decade.

    “We will see one to two ... I believe two cracker plants built in this region,” Consol Energy Inc. CEO Nick DeIuliis said Friday during the University of Pittsburgh's Energy Law and Policy Institute gathering Downtown.

    Such facilities would take ethane — a liquid that comes up with natural gas from many shale wells in Western Pennsylvania, Northern West Virginia and Eastern Ohio — and convert it to ethylene and polyethylene, the building blocks of many common plastic products.

    “If you look at the demand for ethylene and plastics within 500 miles of this region, 50 percent of the demand exists” within that radius, said DeIuliis, who noted he had no inside knowledge of building plans.

    Advocates for building here, where ethane is plentiful and cheap since the shale boom began 10 years ago, say their construction would spur more manufacturing in the area as the makers of those plastic products seek to locate close to the feedstock.

    Despite hundreds of millions of dollars spent on two potential sites in the region, though, their construction is not certain.

    Royal Dutch Shell chose the site of the former Horsehead Holdings zinc smelter in Beaver County four years ago as a potential location, and has spent the past two years preparing it for construction.

    The company has not made a final decision on making the multibillion-dollar investment needed to build, though, said company spokeswoman Kimberly Windon. The company has slashed capital spending over the past two years as it deals with less revenue from oil and gas.

    Farther down the Ohio River in Belmont County, Ohio, PTT Global Chemical commissioned $100 million in studies to examine the feasibility of building at a shuttered power plant across the river from Moundsville, W.Va.

    DeIuliis said the biggest concern people initially had about whether to build here — such plants have traditionally operated on the Gulf Coast — has been answered.

    “I think we've put to bed the question of whether we'll get the amount of ethane produced here that will be needed,” he said.

    Ethane production soared with the shale boom, so much so that prices for ethane have spent the past few years depressed because of oversupply. The Energy Information Administration this month predicted domestic ethane production would grow another 27 percent through 2017 and investment in pipelines and petrochemical plants to use the liquid would increase.

    “These projects increase take-away capacity for ethane, especially in the Marcellus and Utica shale regions, mainly in Pennsylvania, Ohio, and West Virginia, where market outlets for rapidly growing natural gas supply were previously limited,” the agency said.

    Consol and other producers stand to gain from a cracker or two in this area.

    The Cecil-based company has a deal to supply Shell with ethane if it builds.

    In the meantime, Shell, Range Resources and Rex Energy are putting ethane on pipelines such as Sunoco Logistics' Mariner East line to the Philadelphia area, where it's being exported to Europe for cracking.
  • Thai Coal Miner Invests in the Marcellus in PA.  Banpu Pcl, Thailand's largest coal miner, said it had spent $112 million to buy a 29.4 percent stake in the Chaffee Corners Joint Exploration Agreement (JEA), a shale gas operation in the U.S. state of Pennsylvania.

    The Thai company said in a statement the deal was its first in the U.S. upstream gas business and was part of its strategy to balance its heavy exposure to the Asian market.

    JEA is 65.4 percent-owned and operated by Talisman Energy Inc and located in the northeast section of the Marcellus Shale belt, the largest source of natural gas in the United States, it said.

    Banpu's investment represents proved reserves of 156 billion cubic feet of dry natural gas and target net output of around 21 million cubic feet per day for 2016, the company said.

    The gas is sold entirely to the U.S. domestic market, mainly for power generation.

    Many energy firms have been forced to write down the value of their U.S. shale gas operations due to the slump in oil and gas prices.

    Banpu said it had appointed Anon Sirisaengtaksin, the former chief executive of PTT Exploration and Production Pcl, Thailand's largest oil and gas explorer, as a director and to advise on its upstream gas strategy.

    The Thai company has sought to diversify into the power business to help balance the impact of weak coal prices. Banpu aims to boost its power generating capacity to 4,300 megawatts by 2025, including 800 megawatts of renewables.

    Banpu has coal mines in Indonesia, Australia, and China and has interests in power plants in Laos, China and Japan.
  • Utica North Could Be Big.  JKLM has drilled and is producing the 1st ever Utica Well in Potter County, PA.  January results were 9.2 mmcf / day for 24 days, Feb production was 9.8 mmcf / day for 29 days.  This is the Sweden Valley 103 2HU well in Summit Township in Potter County.  

    JKLM is owned by Mr. Terry Pegula, a very successful and well-known operator and ex-CEO of East Resources.  Shell bought out East Resources in 2010 for approx. $4.7 billion.  JKLM has accumulated 100,000+ leasehold acres in Potter County, PA.

    JKLM currently has five approved well pads in Potter County; 2 in Summit Township, 2 in Sweden Township, and 1 in Ulysses Township with a total of 16 active well permits in place.  

    Shell has found much success in the Northern Utica in Tioga County PA.  Travis Peak is now drilling in Tioga as well.  Seneca Resources has also found success in the Northern Utica in McKean County, PA.  The question is no longer is the Utica present and commercially viable in North Central PA, the question now is how large is the Northern Utica and how prolific will the wells be as exploration continues.

    JKLM’s success matches the success that I’ve heard about Shell’s and Seneca’s Utica wells in Tioga County, PA.  

    No one ever thought that Northern PA would be a Utica Shale play.  While it’s in the embryonic stage, it will be interesting to see how it unfolds.  
  • Hess Sells Bakken Oil to Europe.  Oil and gas producer Hess said on Friday it sold Bakken crude for export from the U.S. Gulf Coast to Europe, the first reported shipment of North Dakota crude since Congress lifted the ban on exporting crude four months ago.

    Hess sold 175,000 barrels of Bakken crude, which loaded at St. James, Louisiana, in early April and is being transported to a European refinery, spokesman John Roper told Reuters.

    No buyer name was released by Hess, Kallanish Energy understands.

    The Bakken export comes one day after ExxonMobil confirmed it was shipping roughly 18,000 barrels of offshore oil produced from its Gulf of Mexico Julia Field to its refinery in Rotterdam, Netherlands.
  • A Second Refinery Planned for Bakken.  Meridian Energy Group of Irvine, California, recently announced it has filed the first round of permit applications with local regulators to proceed with its proposed 55,000 barrels per day (BPD) Davis refinery to be built near Belfield, North Dakota.

    If built, it would be the largest new refinery in the state and the second largest overall, Kallanish Energy understands. North Dakota’s largest refiner is Tesoro’s 74,000 BPD complex in Mandan.

    The refinery would primarily process crude oil that is produced in North Dakota’s Bakken Shale play. The state of North Dakota now has five refinery projects that may come online within the next 10 years. If they do, the five would add a combined processing capacity of about 155,000 BPD.

    Meridian plans to construct the proposed refinery in two phases. The first phase would include a crude processing plant with at least 27,500 BPD of capacity and associated terminal installations, expected to be online in 2017.

    Phase two will expand the refinery’s processing capacity to 55,000 BPD, capacity expected to be completed and operational in 2019.

    According to Meridian, the Davis refinery will also have direct access to major transportation infrastructure, including two main highways, oil and gas pipelines, and the Burlington Northern Santa Fe (BNSF) rail line, which runs directly through the refinery site.
  • Kinder Morgan Sues Landowners in OH.  Texas-based Pipeline Company has started to sue Ohio landowners who won’t let the company’s new pipeline cross their properties.

    Kinder Morgan says it can use eminent domain to take easements for its $500 million Utopia East pipeline.

    Earlier this month, Kinder Morgan filed 10 lawsuits against landowners in Carroll County and a dozen lawsuits against landowners in Wayne County. More court actions could be coming.

    “We do anticipate there will be some filings in Stark County and frankly across the route,” said Allen Fore, Kinder Morgan’s vice president of public affairs.

    Kinder Morgan wants to build 240 miles of new pipeline to carry propane and ethane from Cadiz to the Ohio-Michigan border west of Toledo.

    Locally, the proposed route for the 12-inch-diameter Utopia East pipeline crosses Stark, Tuscarawas and Carroll counties. The pipeline would carry up to 50,000 barrels per day, but could be upgraded to ship more than 75,000 barrels per day.
  • 77 Energy Working out Its Financing.  Midstreamer Seventy Seven Energy, spun-off from Chesapeake Energy two years ago, on Tuesday announced it entered into a Restructuring Support Agreement (RSA) with lenders representing 92% of the outstanding principal amount under its Tranche A loan.

    The RSA also includes certain noteholders collectively owning or controlling more than 57.7% of Seventy Seven Energy’s 6.625% senior notes due in 2019.

    The terms of the agreement provide for a substantial deleveraging of the Oklahoma City, Oklahoma-based company’s balance sheet by converting roughly $1.1 billion of bond debt into new common equity.

    The pact outlines an expected restructuring through a prepackaged plan of reorganization via Chapter 11 under the U.S. Bankruptcy Code, Kallanish Energy reports.

    The company intends to begin a prepackaged Chapter 11 proceeding on or        before May 26, to implement the plan.

    “Today’s announcement is a clear endorsement by the stakeholders of Seventy Seven Energy in the future of this company,” CEO Jerry Winchester said. “The exchange of debt for equity will provide us with a significantly deleveraged balance sheet, and we will emerge from this process as a stronger company.”

    The plan includes the exchange of all $650 million of the 2019 notes into either 96.75% (if the holders of the 2022 notes vote as a class to accept the plan), or 98.67% (if the holders of the 2022 notes vote as a class to not accept the plan) of the company’s new common stock to be issued in the reorganization.

    Also included is the exchange of all $450 million of the 2022 notes for 3.25% of the new common as well as warrants exercisable for 15% of the new common at predetermined equity values if the holders of the 2022 notes vote as a class to accept the plan, or 1.33% of the new common if the holders of the 2022 notes vote as a class to not accept the plan.

    The company’s existing $400 million secured term loan also will be reinstated.
  • Tenaska’s Downstream Project in PA.  Independent power producer (IPP) Tenaska said Tuesday it closed on roughly $780 million in financing for the 925-megawatt (MW) Tenaska Westmoreland Generating Station, a natural gas-fired power plant located roughly 30 miles east of Pittsburgh, Pennsylvania.

    MUFG Union Bank, BNP Paribas, Citigroup Global Markets and Industrial and Commercial Bank of China led the bank group financing, Kallanish Energy finds.

    The Tenaska Westmoreland project is owned by Tenaska Pennsylvania Partners, comprised of affiliates of Omaha, Nebraska-based Tenaska and Diamond Generating Corp. (DGC), a subsidiary of Tokyo-based Mitsubishi.

    “DGC is pleased to be part of this important project in Pennsylvania and is committed to providing reliable, clean electricity for the region,” said CEO Satoshi Hamada.

    “Achieving financial closing for Tenaska Westmoreland illustrates our ability to develop and advance market-driven power projects,” said Greg Kelly, president of Tenaska’s Development Group.

    Construction on the facility began earlier this year, with commercial operation targeted for 2018. Black & Veatch is the engineering, procurement and construction (EPC) contractor for the project.

    Tenaska has for seven years sought to build the plant on about 400 acres of farm land it purchased in Western Pennsylvania. Final permits for the project were awarded earlier this year by the state Department of Environmental Protection.
  • Problems for New England Companies.  Kinder Morgan’s plans to build a $3.3 billion natural gas pipeline from New York into New England through western Massachusetts and southern New Hampshire have been suspended due to lack of interest.

    The Houston, Texas-based pipeline giant said it halted work on its Northeast Direct (NED) Pipeline, citing a lack of contracts with gas distribution companies.
  • Senate Pushing NatGas Exports.  The U.S. Senate passed legislation Wednesday designed at overcoming bureaucratic roadblocks that prevent expedited shipments of American natural gas exports.

    The provision, authored by U.S. Senator John Barrasso (Republican-Wyoming), was included in the bipartisan Energy Policy Modernization Act (Senate Bill 2012), Kallanish Energy understands.

    “Expediting American LNG exports will create jobs in Wyoming and across America while reducing our trade deficit,” Barrasso said.  “It will also give our allies and strategic partners around the world a way to decrease their dependence on Russian gas.”

    Barrasso said liquefied natural gas (LNG) exports have languished due to an overly delayed permitting process. The Department of Energy (DOE) spends on average more than 200 days between the end of the environmental review process and the time it decides whether a project is consistent with the “public interest.”

    The provision sponsored by Barrasso and Senator Martin Heinrich (Democrat-New Mexico) would force DOE to speed up its decision-making process for LNG exports.

    The bill mandates the Secretary of Energy make a final decision on an LNG export application no more than 45 days after an environmental review document for the project is published. It also provides for expedited judicial review of legal challenges to LNG export projects.
  • NatGas Storage Coming to the Utica.  Mountaineer NGL Storage, LLC, announced this week that it is holding a non-binding open season for up to 1.6 million barrels of initial storage capacity with more than 25,000 bbls per day of load-in and load-out. The storage will be made available through a natural gas liquids storage facility (the Mountaineer NGL Storage Project) in Monroe County, Ohio, near Clarington, Ohio, along the Ohio River.

    The open season began on Monday, April 11, 2016, and will conclude at 5:00 p.m. Central Time on May 9, 2016.

    The Mountaineer NGL Storage Project will use the subsurface Salina salt formation as the storage zone. It intends to provide storage services to a growing number of gas processors, producers, markets and commodity traders that are interested in exploiting the wet gas production from the Marcellus/Utica shales. The project will be designed to store ethane, propane, butane and y-grade products. It will offer a highly flexible service that can be specifically tailored to each customer’s needs, providing an on-demand asset to help manage strategic liquids requirements.

    “The Marcellus shale and the Utica shale below it have surprised the entire industry and are fast becoming the next super-producers of natural gas supply in this country, but there is a dire need for reliable storage solutions,” said David Hooker, managing director of Mountaineer NGL Storage. “This project will be strategically located to provide service to the expanding network of pipelines, rail and barge infrastructure that is currently being built to transport Marcellus and Utica natural gas liquids to markets throughout the Northeast, Mid-Atlantic, Mid-Continent and Gulf Coast.”

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

Rig Count

  • Baker Hughes Rig Count the week of April 22, 2016
  • PA
    • Marcellus 17 unchanged
  • Ohio
    • Utica 11 down 1
  • WV
    • Marcellus 12 unchanged
  • TX
    • Eagle Ford – 40 down 2
  • TX & NM
    • Permian Basin – 136 down 5
  • ND
    • Williston – 26 unchanged
  • CO
    • Niobrara – 17 unchanged
  • TOTAL U.S. Land Rig Count 401 down 8

PA Permits for February April 14, to April 21, 2016

       County       Township      E&P Companies

1.    Butler          Concord         Rex
2.    Greene        Washington    Vantage
3.    Greene        Washington    Vantage
4.    Greene        Washington    Vantage
5.    Greene        Washington    Vantage
6.    Greene        Washington    Vantage
7.    Greene        Washington    Vantage
8.    Jefferson      Washington    EQT

OH Permits for weeks ending April 16, 2016

      County        Township    E&P Companies

1.    Belmont       Smith          XTO

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Northeast Supply Enhancement