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Expo/Industry events for the next few months

DUG East
June 21 – 23, 2016
David L. Lawrence Convention Center
Pittsburgh, PA

Midstream PA 2016
October 13, 2016
Penn Stater Conference Center
State College, PA

Latest facts and a rumor from the Marcellus and Utica Shale

  • Spectra Energy Awards 4 Nexus Pipeline Contracts.  Spectra Energy has awarded four contracts for the construction of a proposed 250-mile pipeline that includes a portion of the route through Medina County, a company spokesperson said.

    The awarding of the construction contracts in February for the proposed NEXUS Gas Transmission Pipeline comes in advance of an awaited approval from the Federal Energy Regulatory Commission on the $2 billion project.

    Last November, NEXUS Gas Transmission, a unit of Spectra Energy Corp., proposed the 36-inch natural gas pipeline to the federal commission. NEXUS is seeking to begin building in the first quarter of 2017.

    Spokesperson Adam Parker said in an email that awarding contracts early is not unusual in the industry.

    “Awarding the pipeline construction contracts is a major project milestone and keeps NEXUS on target for a November 2017 in-service date,” he wrote. “The timeframe is common practice for large scale pipeline projects of this nature.”

    The company awarded the four portions of the work to three contractors. Mississippi-based M.G. Dyess Inc. and Georgia-based Latex Construction Co. each were awarded one Ohio portion. Wisconsin-based Michels Corp. was awarded one portion in Ohio and one in Michigan, where the pipeline is proposed to pass through on its way from southern Ohio to a hub in Canada.

    Parker did not provide a dollar figure of the agreements or clarify which contractor was awarded the section covering the proposed route through Medina County.

    Union vs. nonunion

    Both Michels and Latex Construction employ union workers, but M.G. Dyess Inc. does not, said Terry Langley, an organizer at Tulsa, Okla.-based Pipeliners Local Union 798.

    Parker confirmed that 79 percent of the total pipeline mileage was awarded to union contractors, exceeding the company’s early 2015 promise of at least 50 percent union labor on the project.

    But Langley said he was disappointed the construction contracts were not all granted to union contractors.

    “The gas company is not using 100 percent skilled workers,” he said.

    Pipeliners Local Union 798 has about 6,000 members nationwide and about 750 in the Ohio, Michigan, Pennsylvania and West Virginia areas, Langley said. He said he expects at least 50 percent of the laborers from his union who work on the project will be from this four-state region.

    “(Unions) put a lot more into the economy,” he said. “Union workers, they make good wages and they spend.”

    Langley said there are three job classifications — helpers, welders and journeymen. Helpers can make up to $30 an hour, not including benefits. Welders and journeymen make $53 plus benefits.

    Parker said the pipeline would be an economic benefit for the area.

    “The NEXUS project will have a significant positive economic impact on communities, businesses and workforces throughout Ohio and Michigan,” he wrote. “According to an economic study performed by Economic & Policy Resources, the NEXUS project is estimated to create 5,325 jobs, more than $565 million in wages and $697 million in total economic activity in Ohio.”

    The Columbus-based International Union of Operating Engineers Local 18 is another union that expects to work on the project, according to Local 18 special representative Michael Bertolone. Bertolone said he was “extremely happy” for the three union contracts, but disappointed with the selection of M.G. Dyess for the fourth spread.

    “I’m very grateful … but I let (NEXUS) know that I work for the members. … The fact that we spent all this time and effort supporting this project and it was awarded to a non-union contractor (was disappointing,)” he said.

    He said some of the union’s 15,000 Ohio members live along the pipeline’s path and have attended community meetings speaking on behalf of the project. If approved, he estimates somewhere around 500 members could be employed through hiring halls in Cleveland, Toledo, Akron and possibly Columbus. The halls employ workers who live in the surrounding area, he said.

    Bertolone said he has been trying unsuccessfully to organize a meeting between several local unions and M.G. Dyess with the goal of encouraging M.G. Dyess to hire local workers and union members.

    “We just want to have a conversation,” Bertolone said.

    When asked about the union’s concerns, Parker wrote in an email that safety and quality is a priority for NEXUS.

    “We remain committed to utilizing a labor force that shares in our unwavering commitment to safely construct the proposed project to meet our stringent high-quality standards,” he wrote.

    Pipeline only

    The four contracts were awarded for the pipeline construction only. Parker wrote the company plans to award contracts for the construction of four compressor stations, including one in Guilford Township, later this year. The compressor stations are needed to help move the natural gas and other energy components through the line.

    “That means it (the contracts for compressor stations) could be non-union in the station,” Langley said.

    The 26,000 horse-power stations are placed 40 to 70 miles apart along the pipeline to give the gas a “boost” and keep it moving through the pipe.

    “NEXUS will (be) competitively bidding facilities work to qualified contractors,” Parker wrote.
  • Activity May Pick Up at Range.  Range Resources is in motion to move 2- 3 rigs to the Marcellus before year-end.  (RUMOR)
  • NatGas Price Increase.  Many have been wondering about the 33% price increase in NatGas the last few weeks.  According to some CNBC analysts, the scorching heat in the west seems to be the main cause.  The western heat along with projection for a very hot summer in the rest country has resulted in many speculators to take positions in NatGas.  
  • Pioneer Buys Devon’s assets in the Permian.  Oklahoma City, Oklahoma-based producer Devon Energy said it’s selling its remaining non-core assets in Texas’ Midland Basin for $858 million, Kallanish Energy reports.

    Devon didn’t name a buyer, but Irving, Texas-based Pioneer Natural Resources said in a separate press release it was buying Midland assets from Devon for $435 million and would fund the deal via a stock offering led by Credit Suisse, J.P. Morgan, Deutsche Bank and Morgan Stanley.

    In a separate transaction, Devon is selling assets in the southern Midland Basin for $423 million to an unnamed buyer.

    Current production from these assets is roughly 22,000 BOE/d, of which 33% was oil. At Dec. 31, 2015, proved reserves associated with these properties totaled 43 million BOE (MMBOE).

    Devon said the divestitures include its exploration and production assets in the southern Midland Basin and its undeveloped leasehold in Martin County, Texas, bringing its announced non-core sales to $2.1 billion.

    “We are pleased to announce these highly accretive non-core divestitures, concluding our E&P sales process ahead of schedule,” Hager said. “At least two-thirds of our asset sales proceeds are expected to be used to further strengthen our investment-grade balance sheet, while one-third is targeted for reinvestment in our best-in-class U.S. resource plays.”

    Hager is putting money into the Delaware Basin, a piece of the Permian Basin roughly 100 miles west of the Midland Basin, and into the STACK formation in Oklahoma, areas where Devon’s wells are still making money despite low crude prices.

    Hager said that the asset sales will help Devon boost spending in the Delaware and STACK plays by $200 million this year, increasing the company’s 2016 capital spending target for the year to as much as $1.3 billion.

    The company also raised its 2016 production forecast by 7,000 barrels of oil-equivalent per day (BOE/d), to a range of 540,000 to 560,000 BOE/d.

    Pioneer is acquiring from Devon the rights to explore 28,000 acres in the Midland Basin, a section of the Permian Basin in West Texas and New Mexico.

    The producer said it plans to boost drilling in the area of the acquisition by 42% to 17 rigs later this year. Devon will use part of the proceeds to boost investment in the nearby Delaware Basin.

    Pioneer said most of the acquired rights lie adjacent to or, in some cases, directly below assets the company already owns.

    Pioneer expects wells it drills in those zones to generate pre-tax returns of 50% or more. It plans to sell about 6 million new shares to help fund the deal.
  • Projects could be coming off the shelf.  I have heard that the recent price increases has some companies pulling some projects of the shelf.  We’ll monitor this to see if more projects get activated.  (RUMOR)
  • ETE – Williams Deal Approved by FTC.  The merger of pipeline companies Energy Transfer Equity (ETE) and Williams – one of the more contentious deals in the industry in a while, with ETE doing all it can to exit its offer — has been approved with conditions by the U.S. Federal Trade Commission.

    Williams has accused Energy Transfer of trying to break the $20 billion deal, with the two companies suing each other.

    In order to gain full FTC approval for the deal, Williams, or more precisely, its affiliated Williams Partners master limited partnership (MLP), must sell its 50% stake in the Gulfstream Natural Gas System, an interstate pipeline that delivers natural gas to Florida, Kallanish Energy understands.

    There are antitrust concerns regarding this particular pipeline system because ETE’s affiliated MLP, Energy Transfer Partners, owns a 50% stake in the Florida Gas Transmission Pipeline.

    That system is the principal transporter of natural gas to Florida, delivering over 66% of the natural gas consumed in the state. By owning stakes in both pipelines, ETE would, in effect, have a monopoly on gas transmitted to Florida, though half of both pipeline systems would still be owned by other companies.

    It’s believed ETE, which has been looking for any way to escape a deal which requires it to pay $6 billion of the purchase price (which has dropped from roughly $33 billion to approximately $30 billion in nine months) in cash, will use the mandated divestiture as part of it defense in dropping the deal.

    The companies are set to square off in Delaware’s chancery court on June 20 over tax issues ETE says are hobbling the deal, as well as claims by each party the other breached their contact.

    Williams shareholders are scheduled to vote on the deal on June 27. Under the current terms, the merger has to close by June 28 or the agreement expires.
  • Marcellus NatGas to New Jersey. PSEG Power broke ground this week for a new $600 million natural-gas-fired power plant at its energy complex in Sewaren, New Jersey, Kallanish Energy reports.

    The new 540-megawatt (MW) facility will replace a 65-year-old unit scheduled to close when the new facility is operational in 2018. It will operate on natural gas produced from the Marcellus Shale play in neighboring Pennsylvania.

    The new plant, along with a nearby $125 million investment in a switching station, is seen examples of PSEG Power’s efforts to make its system more resilient.

    The switching station and surrounding area flooded during the Hurricane Sandy storm surge three-and-a-half-years ago, knocking out power not only to tens of thousands of customers, but also to nearby refineries.
  • Rex to focus on the Appalachian Basin.  Independent producer Rex Energy said it’s selling its Illinois Basin assets to Campbell Development Group for $40 million or up to $50 depending on commodity prices over the next three years.

    Included in the sale are roughly 76,000 acres in Illinois, Indiana and Kentucky. The assets are currently producing approximately 1,700 barrels per day (BPD) of crude oil, Kallanish Energy learns.

    “The sale of the Illinois Basin assets is another important step for Rex Energy toward improving our liquidity position, and providing greater capital efficiency as we continue with the development of our core Appalachian Basin assets, in particular our Moraine East Area,” said Tom Stabley, Rex’s CEO.

    Proceeds from the sale are expected to pay down the State College, Pennsylvania-based Company’s revolving line of credit and for general corporate purposes.

    Rex added it’s undergoing its regularly scheduled borrowing base redetermination and, pro forma for the Illinois Basin sale, expects to maintain its borrowing base at $190 million.

    The company expects the transaction to close in the third quarter.
  • Hunt Oil and TSSP Commits to Midland Basin.  Investment manager TSSP has committed up to $400 million to develop certain acreage under control of privately-held oil and gas producer Hunt Oil in West Texas’ Midland Basin, Kallanish Energy reports.

    The development area covers roughly 18,000 acres across Martin, Glasscock, Midland and Upton counties.  TSSP’s commitment is expected to take approximately three years to deploy.

    Additional terms weren’t disclosed.

    “Hunt Oil Company is pleased to partner with TSSP in the Midland Basin,” said Travis Armayor, senior vice president for Hunt Oil.  “This partnership will provide strategic capital to efficiently develop a premier asset position in a world-class basin.”

    “We expect this agreement to generate significant value for both parties and look forward to deploying capital in the region over the coming years,” said Matt Dillard, a TSSP partner.

    Jefferies acted as sole financial advisor and Baker Botts served as legal advisor to Hunt in this transaction. Kirkland & Ellis acted as legal advisor to TSSP.
  • NatGas Production to Fall.  Natural gas production in the Lower 48 States from June to July is projected to fall 1%, the Energy Information Administration projects in its monthly Drilling Productivity Report (DPR).

    The DPR expects total gas production from the seven plays to total 45.75 billion cubic feet per day (Bcf/d) next month, down 476 million cubic feet per day (MMcf/d) from June’s 46.23 Bcf/d projection.

    The seven plays tracked by EIA include the Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica, Kallanish Energy reports.

    All seven plays will report a drop in gas production, according to the DPR, led by the Eagle Ford Shale play. Production is expected to fall 211 MMcf/d, or 3.3%, to 6.11 Bcf/d in July, from 6.32 Bcf/d in June, Kallanish Energy learns.

    America’s dominant natural gas-producing play, the Marcellus Shale, will see a 51 MMcf/d, or 0.3%, June-to-July production drop, according to the DPR.

    Next month, Marcellus gas production is projected at 17.46 Bcf/d, from 17.51 Bcf/d this month.
  • Shale Insight Expands to Include OH and WV.  The Marcellus Shale Coalition will take a regional approach with its annual Shale Insight Conference, announcing a new partnership with oil and natural gas associations in Ohio and West Virginia, reports the Pittsburgh Business Times. The newspaper says the conference, which will be on September 21-22, 2016 at the David L. Lawrence Convention Center in Pittsburgh, will held by the Marcellus shale group with the Ohio Oil and Gas Association and West Virginia Oil and Natural Gas Association. It is the sixth year for the event, but the first time the Marcellus Shale Coalition has brought in the other shale organizations to this degree, according to the Business Times.

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

Rig Count

  • Baker Hughes Rig Count the week of June 17, 2016
  • PA
    • Marcellus 13 unchanged
  • Ohio
    • Utica 12 unchanged
  • WV
    • Marcellus 12 up 2
  • TX
    • Eagle Ford –34 up 4
  • TX & NM
    • Permian Basin – 146 up 4
  • ND
    • Williston – 24 unchanged
  • CO
    • Niobrara – 12 unchanged
  • TOTAL U.S. Land Rig Count 398 up 10

PA Permits for June 9, to June 16, 2016

       County            Township    E&P Companies

1.    Greene              Morris        Vantage
2.    Greene              Morris        Vantage
3.    Westmoreland    Salem        Apex
4.    Westmoreland    Salem        Apex
5.    Westmoreland    Salem        Apex

OH Permits for weeks ending June 11, 2016

       County      Township  E&P Companies

1.    Carroll        Morris        Envervest

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Utica Summit 2019