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Expo/Industry events for the next few months

Shale Insight
September 21-22, 2016
David L. Lawrence Convention Center
Pittsburgh, PA 

Utica Summit
October 11, 2016
Embassy Suites
Canton, OH 

Midstream PA 2016
October 13, 2016
Penn Stater Conference Center
State College, PA 
Limited seating- sign up early   

Latest facts and a rumor from the Marcellus, Utica, Permian, Eagle Ford, Bakken and Niobrara Shale Plays 

Spectra Energy – Enbridge Deal.  Two of North America’s largest energy infrastructure companies, Spectra Energy and Enbridge, are merging, creating North America’s largest energy infrastructure firm in a $28 billion deal.

The stock-for-stock deal values Spectra common at roughly $28 billion, based on the closing price of Enbridge's common shares on Sept. 2, Kallanish Energy calculates.

Under the terms of the transaction, Spectra shareholders will receive 0.984 shares of the combined company for each share of Spectra common owned.

The consideration Spectra shareholders receive is valued at $40.33 per Spectra share, based on the closing price of Enbridge common on Sept. 2, a roughly 11.5% premium to the closing price of Spectra common on Sept. 2.

Enbridge shareholders will own roughly 57% of the combined company and Spectra shareholders will own approximately 43%. The combined company will be called Enbridge.

“Over the last two years, we've been focused on identifying opportunities that would extend and diversify our asset base and sources of growth beyond 2019," said Al Monaco, Enbridge CEO. “We are accomplishing that goal by combining with the premier natural gas infrastructure company to create a true North American and global energy infrastructure leader.”

The merger partners point to several reasons for the deal:

The combined company brings together many of the highest quality energy infrastructure assets in North America: liquids and gas pipelines; U.S. and Canadian midstream businesses; a regulated utility portfolio; and a growing renewable power generation business.

The merged company brings a low-risk commercial structure with stable long-term cash flow, as 96% of pro-forma free cash flow is underpinned by long-term commercial agreements (cost-of-service, take-or-pay, of fixed fee); 93% of customers are investment grade or equivalent counterparties; and less than 5% of

combined pro-forma cash flow will have direct exposure to commodity price risk.

Together, Enbridge and Spectra Energy bring $20 billion in secured capital and a $37 billion inventory of probability weighted projects in development.

The combination is expected to result in sufficient internally generated cash flow to fund growth and improve balance sheet strength. Enbridge will have multiple, cost-effective funding sources and be even more competitive in capturing opportunities.

The combined company's $57 billion organic growth platform is expected to support a dividend growth rate of 10-12% through 2024, including an anticipated aggregate increase of 15% in 2017 post-closing.

The combination is expected to achieve annual run-rate synergies of $415 million. Roughly $200 million of tax savings can be achieved through utilization of tax losses beginning in 2019.

"The combination of Enbridge and Spectra Energy creates what we believe will be the best, most diversified energy infrastructure company in North America, if not the world,” said Greg Ebel, CEO of Spectra, who will become chairman of the new Enbridge.

Utopia Pipeline Benefits.  Pipeline giant Kinder Morgan’s (KMI’s) proposed ethane pipeline across Ohio will provide a $237.3 million benefit to the state’s economy over the project’s first five years, Kallanish Energy finds.

The study of the $500 million Utopia East Pipeline was generated at Kinder Morgan’s request by Shawn Rohlin and Nadia Greenhalgh-Stanley, both associate professors of economics at Kent State University.

The company released the 11-page report last week on the Utica to Ontario Pipeline Access (UTOPIA) project.

The 215-mile pipeline would run through 14 Ohio counties from Harrison County in eastern Ohio, to the northwest to Fulton County near Toledo, where it would connect to existing pipelines into Michigan and Ontario.

The 12-inch line would move 50,000 barrels per day (BPD) of ethane and ethane-propane blends from the Utica Shale to NOVA Chemicals and its plant at Corunna, Ontario.

Capacity could be boosted to 75,000 BPD with the addition of two more pumping stations.

Construction could begin in early 2017 and the pipeline would begin operations in mid-2018, the Texas-based company said.

The pipeline will generate or support $144.9 million to Ohio’s gross state product; $87.5 million in additional income and spending; and $4.9 million in tax revenue, the report says.

The pipeline is expected to create 2,132 new and indirect jobs including about 900 union construction jobs. About half of those workers would come from other states and 5% of the supplies would come from Ohio companies, the report says. Only five jobs would be permanent.

The pipeline would also reduce costs for Ohio plastic companies that could receive shipments from Ontario for plastic feedstock, the report says.

A second 12-inch pipeline on the same route across Ohio for natural gasoline has been scrapped by Kinder Morgan. It would have run to Canadian tar sands drillers in Alberta.

OH NatGas Up and Oil Down.  Ohio natural-gas production increased slightly, and oil production fell for the second consecutive quarter, according the figures issued by the state for the second quarter, which ended in June.

Energy companies reported that they produced 334 billion cubic feet of gas, up 1 percent from the previous quarter and a 51 percent increase compared with the second quarter of 2015. Oil production totaled 4.8 million barrels, down 12 percent from the previous quarter. It was 19 percent less than in the year-ago quarter.

"The petroleum industry in general is in a major slump right now, and the oil-production numbers are reflecting that," said Ben Ebenhack, a petroleum engineering professor at Marietta College.

Oil production, which includes the Ohio portion of the Utica and Marcellus shale formations, peaked at 6.4 million barrels in the fourth quarter of 2015 and has fallen in the two quarters since.

Ebenhack thinks gas production also would be falling if not for the completion of pipelines, which is allowing producers to transport gas from wells that already had been drilled but had nowhere to go.

The report, issued Thursday by the Ohio Department of Natural Resources, shows results for 1,415 shale wells. Of that total, 1,362 had at least some oil or gas production.

The industry continues to struggle, which is shown by the current number of drilling rigs active in the state. There were 13 rigs as of last week, down one from the previous week and down five from the previous year, according to the oilfield services firm Baker Hughes.

Seventeen counties had gas production in the second quarter. The top five, in order, were: Belmont, Monroe, Carroll, Harrison and Noble.

For oil, 16 counties had production: The top five: Harrison, Guernsey, Carroll, Noble and Monroe.

Chesapeake Energy remains the top producer for gas and oil.

Downstream Projects Will Demand More NatGas.  Here's a tip: Keep an eye out for terms like ethane, ethylene, cracker and ammonia. These are keywords linked to a resurgence of domestic chemicals' manufacturing might. The boom is so broad that it's altering the global competitive landscape and luring a large

segment of the chemical trades back to U.S. shores.

At least 268 production projects are in the works, totaling more than $170 billion in corporate capital spending, according to the American Chemistry Council. Some 60% of that spending is direct foreign investment. The building boom has tapped much of the available capacity among engineering and construction firms,

including Bechtel and Fluor (FLR). It has sucked up steel from distributors like Ryerson Holding (RYI) and Olympic Steel (ZEUS). And it has boosted manufacturers of components for energy, refinery and processing plants.

The root cause driving this industrial bonanza: natural gas from shale rock.

Fluor and Japan's JGC are managing the $6 billion construction of a new, 1.5 million metric ton-per-year ethane cracker for Chevron Phillips Chemical in the company's existing Cedar Bayou Complex in Baytown, Texas. (Fluor)

Shale gas and its associated liquids provide basic raw materials for plastics, fertilizers and a host of other chemical products. The biggest piece of that picture is ethane, used to create ethylene — the starting point for most plastics.

"The U.S. producer who uses cheap gas can make a product for a fraction of what the higher-cost producers (are capable of), whether they be in Asia or whether they be in Europe," said Fidelity equity analyst Mahmoud Sharaf, who also manages the Fidelity Select Chemicals Portfolio Fund (FSCHX).

The buildup is focused along the U.S. Gulf Coast, already the stronghold of U.S. refining and chemicals processing. But it reaches north, east and west.

Just north of Pittsburgh, Shell Chemical, a unit of Royal Dutch Shell (RDSA), is building a $6 billion ethylene refinery — called a cracker, because it breaks down or "cracks" ethane molecules to create ethylene. Thailand's PTT Global is in the early engineering phases of a similar, $5 billion project in eastern Ohio.

A handful of ammonia-plant projects are scattered across California, Wyoming and Iowa. An approved ethane cracker is in early stages in North Dakota, and two new ethane crackers and three polyethylene-processing facilities are moving ahead in West Virginia.

All told, the ACC estimates that the new facilities will provide permanent jobs for 62,000 chemical professionals, in an industry where the average salary is a not-so-shabby $94,000. More broadly, the facilities should boost the economies surrounding those new plants by as many as 655,000 workers, the ACC figures.

The impact?

"It's huge — at least in western Pennsylvania where there is not a lot of what I would call big chemical industry," said Andrew Gellman, a professor of chemical engineering at Carnegie Mellon University.

Gellman points to the cracking plants going up in West Virginia, Ohio and Pennsylvania and says the question over the longer term is "whether or not the ethylene and propylene that the crackers create here gets used in this region" to make other products and thus expand the local economy, "or does it get shipped out?"

Blackeagle Energy Does Deal in the Permian.  Blackeagle Energy Services has acquired certain Permian Basin assets in west Texas from Brazos Rock for an undisclosed price, Kallanish Energy has learned.

Colorado-based Blackeagle said it will employ Brazos Rock’s employees and occupy the company facilities in Midland, Texas.

Blackeagle is a provider of energy-related construction and maintenance services.

“The transaction increases our footprint and strengthens our existing Texas operations,” said Rick Barrett, Blackeagle’s CEO, in a statement to local media.

The deal puts Blackeagle at the “epicenter of the nation’s largest oil-producing region,” he said.

Brazos Rock, based in Weatherford, Texas, is a provider of oilfield construction services.

Enbridge Cancels Bakken Pipeline. North Dakota crude oil production is too low to support development of the planned eastbound Sandpiper pipeline, Enbridge Energy said last week.

“Enbridge Energy Partners has completed a review of Sandpiper and concluded that the project should be delayed until such time as crude oil production in North Dakota recovers sufficiently to support development of new pipeline capacity,” the company said.

Sandpiper would have stretched 616 miles from North Dakota oilfields, through Minnesota to an Enbridge terminal in Superior, Wisconsin, and on to U.S. and Canadian refineries, Kallanish Energy finds.

Enbridge Energy Partners and Marathon Petroleum established a joint venture in early August to acquire a stake in the Bakken Pipeline system, a system that links the North Dakota oilfields to regional networks.

The companies said at the time that once the acquisition was consummated, the partners would give up their options for Sandpiper.

The Bakken pipeline system Enbridge and Marathon are teaming on includes the controversial Dakota Access pipeline project that would extend south from North Dakota (see accompanying story).

Tribal groups are suing federal regulators over permits for the 1,134-mile pipeline because of threats to the Missouri River and other regional water ways.  The Bakken system consists of the Dakota Access Pipeline and the Energy Transfer Crude Oil Pipeline (“ETCO”) projects.

Enbridge Energy Partners’ interest in the system will be acquired through an indirect investment in a joint venture (MarEn) with Marathon. Enbridge Energy Company Inc. will hold a 75% interest in the Bakken system.

MarEn will own a 49% interest in an affiliate of Energy Transfer Partners and Sunoco Logistics Partners which, in turn, owns 75% of the Bakken Pipeline.

The closing of the Bakken Pipeline acquisition is anticipated to occur around the end of the third quarter.

Mariner East 1 Is Pumping.  The drillers who blasted through bedrock during Pennsylvania's Marcellus Shale boom unleashed stockpiles of energy that are now being delivered to bigger markets.

Sunoco Logistics Partners announced today that its Mariner East 1 pipeline is now carrying both ethane and propane from Washington County shale fields to the Marcus Hook Industrial Complex in Delaware County.

"Mariner East 1 is an important milestone for the natural gas and manufacturing industry in Pennsylvania," said Sunoco Logistics CEO Michael Hennigan.

With Mariner East 1 up and running, Marcus Hook is now positioned as the East Coast hub for processing and storing propane, ethane and other natural gas liquids, and then distributing them to local, U.S. and international markets, he said.

The pipeline can transport 70,000 barrels of ethane and propane per day. It started moving propane in December 2014 and ethane last month. This week, the first tanker carrying ethane to European markets departed from Marcus Hook.

Devastated by loss of oil, Marcus Hook's fortunes rest on new buried treasure: gas

From the renaissance at Marcus Hook to moving shale gas to local manufacturers, Sunoco Logistics is making a $3 billion investment into Pennsylvania's energy economy, Gov. Tom Wolf said.

"The opening of the Mariner East pipeline represents a vital first step in redirecting Pennsylvania's abundant natural gas resources to critical markets here at home," he said.

This development is creating 290 to 440 permanent jobs, Wolf said.

Mariner East is a huge boon to the local labor pool, according to John Dougherty, business manager of the Philadelphia Building and Construction Trades Council.

"This kind of development creates real jobs, giving Pennsylvanians the chance to get ahead, instead of falling behind," he said.

Sabalo’s Permian Deal.  Texas-based Finley Resources is selling a portion of its Permian Basin assets in West Texas to fellow Texas company Sabalo Energy, Kallanish Energy reports.

Details of the sale were not revealed by the privately-held companies.

The sale was announced by Simmons & Co. International in Houston, Texas, that worked on the sale of Finley Resources’ Howard County, Texas, assets, located northeast of Midland, Texas.

Finley Resources, based in Fort Worth, has 2,500 oil-and-gas properties in eight states. Sabalo, a portfolio company of private equity firm EnCap Investments, is based in Corpus Christi.

EOG – Yates Deal.  Texas-based EOG Resources is combining with New Mexico-based, privately-held Yates Petroleum and some of its subsidiaries in a deal valued at $2.5 billion.

The deal will double EOG’s holdings to 400,000 acres in the Powder River in Wyoming and to 424,000 acres in the Permian’s Delaware Basin in West Texas.

EOG will issue 26.06 million shares valued at $2.3 billion and pay $37 million in cash, in exchange for Yates Petroleum, Abo Petroleum, MYCO Industries and other entities.

Even Cruise Ships Are Switching to LNG.  Carnival Corp. said Tuesday its Carnival Cruise Line will take delivery of two, new 180,000-gross-registered-ton cruise ships in 2020 and 2022, which will be the first North America-based cruise ships powered by liquefied natural gas.

The two ships, with a combined passenger capacity of 5,200, will be the largest in the Carnival fleet. Both are being constructed by Finnish shipbuilder Meyer Turku at the company’s Turku, Finland shipyard, Kallanish Energy finds.

“This new ship order signifies an extraordinarily exciting future for Carnival Cruise Line and the opportunities that lie ahead to introduce a variety of magnificent new features and innovations to further enhance our outstanding guest experience,” said Christine Duffy, president of Carnival Cruise.

“Both of these ships will be fully powered at sea and in port by liquefied natural gas, which is the world’s cleanest burning fossil fuel,” Duffy added.

Specific design details and itinerary information for the new ships will be announced at a later time, Carnival said.

PA’s Top 10 NatGas Producing Counties.  Pennsylvania’s Susquehanna County was No. 1 statewide for first-half 2016 natural gas production, with 609.7 billion cubic feet (Bcf) of production, up 9.8% from one year ago.

The county in Northeast Pennsylvania represented 24% of statewide production, from its 983 wells, according to a report from the state’s Independent Fiscal Office.

The rest of the Top 10 counties were: Washington, 404.9 Bcf, up 38.2%; Greene, 354.4 Bcf, up 40.1%; Bradford, 353.8 Bcf, down 3.7%; Lycoming, 223.6 Bcf, down 10%; Wyoming, 135.4 Bcf, up 7.5%; Tioga, 97.5 Bcf, down 4.5%; Butler, 85.6 Bcf, up 25.5%; Sullivan, 50.1 Bcf, down 2.2%; and Fayette, 40.9 Bcf, up 25.8%.

All other Pennsylvania counties produced 186.7 Bcf in the first half of 2016, Kallanish Energy learns.

According to the report, Pennsylvania had 6,793 horizontal wells and 510 vertical wells for a total of 7,303 producing wells in the second quarter of 2016. That figure grew by 13.1%, from 6,457 horizontal and vertical wells in second quarter of 2015.

Production in Pennsylvania grew at an average rate of 44.6% annually between 2011 and 2015.

Ohio and Pennsylvania recorded the biggest increases in natural gas production in the first five months of 2016, according to the report. Ohio’s production jumped by 72.3% and Pennsylvania’s by 12.8%.

Texas was No.1 for total natural gas production from January through May, Pennsylvania was second, Alaska third, Oklahoma fourth, and Louisiana was fifth. The rest of Top 10 were: Wyoming, Colorado, Ohio, West Virginia and New Mexico.

Five of the states, including Texas, showed production declines during those five months.

Baker Hughes Cutting Pay.  Oilfield services firm Baker Hughes Inc. (BHI) plans to begin a temporary furlough program for some employees, the Houston Business Journal reports.

“In response to challenging industry conditions, Baker Hughes has implemented a temporary 5% pay reduction for certain U.S. employees during the last 14 weeks of 2016, while providing those employees four additional paid holidays,” a Baker Hughes spokeswoman told the Houston, Texas-based business newspaper.

“These efforts will allow us to lessen the need for additional workforce reductions while remaining focused on serving customers and maintaining safe, compliant operations.” No specific number was released.

The pay cuts begin Sept. 11, and last through the end of the year. Certain employees in division such as global operations, chemical operations, human resources, sales, corporate security and information technology are exempt, Kallanish Energy understands.

The world’s third-largest oilfield services company has slashed roughly 6,000 employees since it issued its 2015 annual report. Employment as of this past July totaled 36,000.

The world’s second-largest and largest oilfield services firms, Halliburton and Schlumberger, respectively, have cut 5,000 and 8,000 jobs in the second quarter, respectively.

Antero Boosting Production.  Antero Resources is anticipating 2017 production growth of 20% to 25% over 2016, Kallanish Energy reports.

It is boosting its 2016 production guidance, while maintaining its 2016 budget of $1.3 billion for drilling and completions in the Marcellus and Utica Shale plays. The independent producer also expects to spend $1.3 billion in 2017 on well drilling and completions.

The Denver, Colorado-based company is increasing its yearly production guidance for 2016 by 3% — from 1.75 billion cubic feet-equivalent per day (Bcfe/d), to 1.8 Bcfe/d.

That is also a 5% boost from the company’s initial 2016 production guidance.

The new production guidance includes an 11% increase in liquids production, to 73,000 barrels per day (BPD) from June’s guidance, a 22% increase from the original guidance for the year.

The increased production guidance is tied to improved recoveries and drilling efficiencies including the use of more sand in hydraulic fracturing, or fracking, the company said. The company had been using 1,200 to 1,500 pounds of sand per foot, but that has been increased to 1,750 to 2,000 pounds per foot with increased production, officials said.

Antero reported 29 of the 52 wells placed in production in 2016 used more than 1,300 pounds per foot.

Other efficiencies include a reduction in drilling days, more stages completed per day and longer laterals.

To date, the company began production on 78 wells in 2016.

Antero has operated six rigs in the Marcellus Shale and one rig in the Utica Shale during 2016.

Apache Makes Major Find in the Permian.  Apache has had a major oil discovery, the Alpine High, in Reeves County, Texas. This comes after more than two years of extensive geologic and geophysical work, methodical acreage accumulation, and strategic testing and delineation drilling. The company estimates

hydrocarbons in place on its acreage position are 75 trillion cubic feet (Tcf) of rich gas (more than 1,300 BTUs) and 3 billion barrels of oil in the Barnett and Woodford formations alone.

This is a sign the strongest shale companies are not only surviving the steepest price crash in a generation, but growing despite it, according to Reuters.

Apache has secured 307,000 contiguous net acres at about $1,300 per acre; a steal when compared to land that went for as much as $30,000 an acre in other parts of Texas, according to Reuters.

"While other companies have focused on acquisitions during the downturn, we took a contrarian approach and focused on organic growth opportunities," said John J. Christmann IV, Apache's chief executive officer and president.

To accelerate the delineation and development of the Alpine High play, Apache has raised its 2016 budget to $2 billion from $1.8 billion. Capital spending on the Alpine High play in 2016 will represent more than 25 percent of Apache's total capital spending program. Apache is one of a dozen or so shale producers to raise their budget, while other weaker competitors have fallen into bankruptcy, according to Reuters.

Apache has drilled 19 wells in the play, with nine currently producing in limited quantities due to infrastructure constraints. This includes six wells in the Woodford, one well in the Barnett and one well each in the shallower Wolfcamp and Bone Springs oil formations.

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

Rig Count 

  • Baker Hughes Rig Count the week of September 9, 201
  • PA     
    • Marcellus 21 unchanged
  • Ohio 
    • Utica 14 up 1
  • WV 
    • Marcellus 10 up 2
  • TX
    • Eagle Ford 38 unchanged
  • TX & NM
    • Permian Basin – 200 down 2
  • ND
    • Williston – 28 unchanged
  • CO
    • Niobrara – 15 unchanged
  • TOTAL U.S. Land Rig Count 485 up 3

PA Permits August 25, to September 8, 2016

       County                  Township                E&P Companies

1.    Bradford                  Columbia                Talisman
2.    Bradford                  Columbia                Talisman
3.    Bradford                  Columbia                Talisman
4.    Bradford                  Columbia                Talisman
5.    Bradford                   Columbia                Talisman
6.    Bradford                   Columbia                Talisman
7.    Bradford                   Columbia                Talisman
8.    Bradford                   Columbia                Talisman
9.    Butler                       Adams                    Rex
10.    Butler                      Center                     XTO
11.    Butler                      Franklin                    XTO
12.    Butler                      Franklin                    XTO
13.    Elk                          Jones                       Seneca
14.    Elk                          Jones                       Seneca
15.    Greene                    Center                       EQT
16.    Greene                    Morgan                      EQT
17.    Greene                    Washington                EQT
18.    Greene                    Washington                EQT
19.    Greene                    Washington                EQT
20.    Greene                    Washington                EQT
21.    Greene                    Washington                EQT
22.    Greene                    Washington                EQT
23.    Greene                    Washington                EQT
24.    Lycoming                 Franklin                     Exco
25.    Lycoming                 Hepburn                     Seneca
26.    Potter                      Ulysses                      JKLM
27.    Sullivan                    Cherry                       Chief
28.    Sullivan                    Cherry                       Chief
29.    Susquehanna            Bridgewater                Cabot
30.    Susquehanna            Middleton                   Cabot
31.    Susquehanna            Middleton                   Cabot
32.    Susquehanna            Middleton                   Cabot
33.    Susquehanna            Middleton                   Cabot
34.    Susquehanna            New Milford                Cabot
35.    Susquehanna            New Milford                Cabot
36.    Susquehanna            New Milford                Cabot    

OH Permits for weeks ending August 27, and September 2, 2016

        County                 Township           E&P Companies

1.    Belmont                 Colerain              Ascent
2.    Belmont                Colerain               Ascent 
3.    Belmont                Colerain               Ascent
4.    Belmont                Colerain               Ascent
5.    Belmont                Kirkwood             Hess
6.    Belmont                Kirkwood             Hess
7.    Belmont                Kirkwood             Hess
8.    Belmont                Kirkwood             Hess
9.    Belmont                Wayne                Gulfport
10.    Belmont              Wayne                Gulfport
11.    Belmont              Wayne                Gulfport
12.    Belmont              Wayne                Gulfport
13.    Belmont              Wayne                Gulfport
14.    Belmont              Wayne                Gulfport
15.    Guernsey           Londonderry         Ascent 
16.    Noble                Seneca                Antero
17.    Noble                Seneca                Antero

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Utica Summit 2019