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Expo/Industry events for the next few months

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  now   

OOGA Technical Conference and Oil Expo
November 2
Pritchard Laughlin Civic Center
7033 Glenn Hwy
Cambridge, Ohio  43725 

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

Oil Is Above $50 and NatGas Is over $3.  The question is “How long will these prices stay there?”  Oil was last above $50 on June 29th while NatGas has been above $3 a couple of times in the last few months.

Many traders believe that OPEC is “jawboning” the price higher and the OPEC meeting in November will not lead to any real production cuts.  If there are any production cuts, these cuts will be quickly filled by U.S. shale oil producers.  

I read a recent article I in the WSJ which stated the Saudi economy is hurting.  The kingdom just paid construction companies bills that were months old.  The situation was so bad that workers for these companies had not been paid in months.  

All indications are that the consistent low price of oil is beginning to cause some hardships in the kingdom.  Consequently, the Saudis are losing their leverage in the global pricing of oil.

You may not be aware of the fact that Saudi Arabia is planning on doing an IPO for its Saudi Aramco oil company.  A NY stock trader told me that the IPO is an indication that the kingdom is running out of oil which is the reason for the IPO.

This is very fluid situation.  We’ll keep you updated. 

NatGas Association Forecasts Colder Winter – Record Demand for NatGas. Colder winter temperatures and a greater demand for natural gas than a year ago are expected to place upward pressure on natural gas prices and produce a record winter demand, says the Natural Gas Supply Association, a national trade group.

Winter temperatures in the United States are expected to be 12% colder and that is expected to increase winter demand for residential and commercial use of natural gas by 4 Bcf/day on average, Kallanish Energy has learned.

That assessment of wholesale prices came on Wednesday in the group’s 16th annual Winter Outlook.

The association is projecting a customer demand of 92.3 Bcf/day with a growth of 12% in residential and commercial use because of the colder temperatures. Industrial use will likely set a new record, although it will only be slightly more than a year ago, the association said.

There will likely be a small production decrease of 0.5 Bcf/day through the winter, it said. That upward pressure on prices was in comparison with last winter when there were unusually low prices, the association said. That is when the wholesale winter natural prices at the Henry Hub averaged a 16-year low of $1.98 per MMBtu, it said.

“The picture that has emerged for the upcoming winter is one of a flexible natural gas market that is able to respond to changes in weather and customer demand with ample supply and full storage facilities,” said NGSA chairman Bill Green, who is a vice president, downstream marketing, for Oklahoma-based Devon Energy.

The association said a near-record volume of natural gas is already in storage for winter use. Typically, about 16% of winter supply comes from storage.

It does not project price figures.

Armstrong Flooring Onshoring.  I have been presenting and attending a number of oil and gas industry expos, conferences and seminar for the last seven years and have often heard that “onshoring will be coming.”  Today, I heard my first example of onshoring.  The Armstrong Flooring company located in the city of Lancaster , Lancaster County PA had relocated manufacturing ??? plants to China.  Well, those plants are coming back.

Armstrong Flooring recently announced that its production facilities in China are returning to the city of Lancaster , Lancaster County PA.  Armstrong is actually moving into its old manufacturing facility to the US.

The sole reason for Armstrong’s return is the cheap cost of energy.  Armstrong will be able to take advantage of the cheap natural gas it will get from Williams’ Atlantic Sunrise Pipeline.

I expected onshoring to occur.  I thought it would come sooner, but at least it’s starting to happen.  Armstrong’s return will prompt other companies to give serious consideration to onshoring.

At the Marcellus-Utica Midstream Conference last January, I’ll never forget a representative from Hong Kong venture fund who stopped by our booth.  The gentleman was from West Virginia, but had been living in Hong Kong for 15 years working for this venture capital fund. His fund was looking to invest in companies in the U.S. that make products that run on LNG or CNG.  He told me, “It was too bad that China did not have this cheap energy.  China cannot compete against cheap energy in the U.S.”

As I hear of other onshoring situations, I’ll keep you updated.

Rice pays $20,000 per acre.  According to Seeking Alpha, Rice Energy's acquisition of Vantage Energy implies valuation of nearly $20,000 per undeveloped acre in Marcellus Core.

If natural gas prices move higher, this valuation may not be the limit.

The transaction effectively sets a valuation benchmark for other stocks with exposure to Marcellus Core.

Encana to Quadruple Permian Production.  Canada-based Encana is planning to boost its oil production in the Permian Basin and perhaps quadruple it.

The company is planning to boost its capital spending by as much as 30 percent in 2017 – with half of that money going to East Texas and New Mexico, Kallanish Energy is reporting.

It would jump from $1.1 billion to $1.2 billion to $1.4 billion to $1.8 billion, CEO Doug Suttles said on Wednesday at the company’s Investor Day in New York City.

The driller, based in Calgary, Alberta, sold $1 billion in shares last month to pay for its additional exploration of the oil-rich Permian Basin.

“In the current environment, we’ve obviously been shrinking,” Suttles said in an interview with Bloomberg. “What we now need to do is pivot back to growth. We don’t think many people can do that. We don’t think they have the portfolio. We don’t think they have the efficiencies. We don’t think they have the balance sheet capacity to do that.”

Encana also released a five-year plan that calls for a potential 300% increase in cash flow, a doubling of corporate margins, a 60% increase in total production and achieving a balanced production mix of oil, liquids and natural gas.

Oil and other liquids now make up about 35 percent of Encana’s production and natural gas is 65%, and the company is moving toward a 50-50 split between liquids and natural gas.

The company is looking to boost production in what Suttles called its “core four:” the Permian Basin and Eagle Ford Shale in Texas and the Montney and Duvernay formations in Western Canada.

Encana holds a 140,000-acre Permian Basin leasehold in Midland, Upton, Martin, Howard and Glasscock counties. It is the No. 2 producer in the Permian behind Pioneer Natural Resources.

U.S. Propane Exports up 41.1%  Propane exports from the United States grew by 41.1% or more than 230,000 barrels per day in the first half 2016, Kallanish Energy is reporting.

That resulted in propane becoming the second-largest U.S. petroleum product export, after distillates, according to the Department of Energy’s Energy Information Administration. Propane passed motor gasoline to take the No. 2 spot, the agency said.

Propane exports jumped from about 562,000 BPD in the first half of 2015 to 793,000 BPD in the first half 2016, the agency said. Most of those shipments went to Asia and Oceania. Japan took in 159,000 BPD. Distillate exports averaged 1.2 million BPD in the first half 2016. That is an increase of 50,000 BPD from the same period in 2015.

Central and South America accounted for the largest share of U.S. distillate exports, averaging more than 620,000 BPD in the first half 2016, the EIA said. The No. 1 customer for distillates was Mexico with 147,000 BPD in the first half 2016. In the first half 2016, the U.S. exported 4.7 million BPD of petroleum products, the EIA said.

That is 500,000 BPD over the first half 2015 and almost 10 times the crude export volume, the EIA reported. Gasoline exports grew by nearly 140,000 BPD with Canada and Mexico accounting for most of that growth, the federal agency said

Export destinations remain largely unchanged, despite the growth, the EIA said. Mexico with 775,000 BPD, Canada with 579,000 BPD and the Netherlands with 271,000 BPD received the greatest volumes of U.S. petroleum products.

EIA said about 60% of shipments stayed in the Western Hemisphere, down from 65% in 2005.

Enerplus Selling Marcellus Assets.  Canadian energy producer Enerplus Corp has put its natural gas assets in the U.S. Marcellus shale region up for sale, according to three sources familiar with the situation.

The assets could fetch about $500 million, the sources said, speaking on condition of anonymity as the matter is not public.

Enerplus, which owns oil and natural gas assets in Canada and the United States, expects the sale to make its asset portfolio more geographically concentrated and allow it to pay down debt, the sources said.

The Marcellus assets, in Pennsylvania, have drawn interest from parties in the United States and Asia, the sources said, adding that private equity firms are the most likely buyers.

Enerplus, which calls the Marcellus shale gas project one of the most economic dry gas plays in North America, did not respond to a request for comment.

The company says on its website that it has oil assets in the Williston Basin in North Dakota, where it expects to spend ?$145 million this year. That compares with C$20 million for the Marcellus project.

In a recent investor presentation, Enerplus cited "over $1.2 billion of net divestment proceeds since 2010," which it said has helped focus the portfolio. Its website lists the Marcellus asset as one of its focus areas.

About 35 percent of the company's production in 2016 is expected to come from its Marcellus shale business, according to the website.

($1 = 1.3168 Canadian dollars)

SM Energy Selling in the Bakken.  Denver-based SM Energy is seeking to sell leasehold assets in the Williston Basin in the Bakken Shale in North Dakota and Montana, Kallanish Energy reports.

The company intends to sell about 54,500 net acres including the Raven/Bear Den acreage and all lease holdings in the basin outside of the company’s Divide County program in northwest North Dakota.

SM Energy has decided to focus on what it calls its Tier 1 assets in the Permian Basin and the Eagle Ford Shale in Texas, said president and CEO Jay Ottoson.

“As part of this strategy, we are continuing to core up our portfolio, such that we can concentrate investment dollars in the highest return programs and bring that value forward through accelerated activity,” he said in a statement.

Previously, the company has closed on assets in New Mexico, North Dakota, Montana and Wyoming in deals worth $186.7 million. Those assets provide about 3,300 barrels of oil equivalent per day.

Unions Blast Obama.  Five labor unions with nearly 3.5 million members have written to President Barack Obama to urge that the Dakota Access Pipeline construction proceed, Kallanish Energy is reporting..

The union officials blasted the administration’s decision to intervene in the project and to withhold a needed easement in North Dakota while federal agencies conduct a further review. The union leaders said they are “deeply concerned” by the precedent-setting federal action.

“The intervention by the Departments of Justice, Interior and the U.S. Army to indefinitely halt a project that is more than halfway constructed and has received state and federal approval raises serious concerns about the future of infrastructure development in America and the livelihoods of our members,” said the two-page letter that was released on Monday.

It was signed by James Callahan of the International Union of Operating Engineers, James Hoffa of the International Brotherhood of Teamsters, Terry O’Sullivan of the Laborers’ International Union of North America, William Hite of the United Association and Lonnie Stephenson of the International Brotherhood of Electrical Workers.

The pipeline was also upheld by U.S. District Judge James Boasberg, the letter writer’s note.

“We urge you to adhere to the well-established regulatory process for permitting private infrastructure projects and approve the easement for the remaining section of the Dakota Access project without delay,” the letter says.

Oral arguments are scheduled on Wednesday in the U.S. Court of Appeals for the District of Columbia Circuit on whether a work freeze should be extended.

The $3.8 billion pipeline is being developed by Texas-based Energy Transfer Partners. It will stretch 1,172 miles and carry crude oil from the Bakken Shale. The project is opposed by the Standing Rock Sioux and its supporters.

FERC Approves OH Pipelines to the Midwest and Gulf Coast.  The Federal Energy Regulatory Commission has approved operations on the new 37-mile Ohio Valley Connector Pipeline, from northwest West Virginia to southeast Ohio, Kallanish Energy reports.

The $300 million project was developed by Equitrans, a wholly owned subsidiary of Pittsburgh-based EQT Midstream Partners.

The pipeline is designed to provide access to the Texas Eastern and Rockies Express pipelines in southeast Ohio for drillers in northern West Virginia.

That means natural gas from the Marcellus Shale in Wetzel and Marshall counties in West Virginia and the Utica Shale in Monroe County in Ohio can be shipped to markets in the Midwest and the Gulf Coast.

The project includes two compressor stations and three interconnects.

Most of the line is 30 inches in diameter and it is capable of moving about 1 billion cubic feet per day of natural gas.

The project passed FERC inspections on Sept. 20-21.

Construction began in the third quarter of 2015.

FERC Approves Utica Access Pipeline.  The Federal Energy Regulatory Commission has given the Columbia Pipeline Group permission to begin operations on a new pipeline in West Virginia.

The order covers the 5-mile Utica Access Pipeline in Kanawha County near Charleston, Kallanish Energy reports. The pipeline is 24 inches in diameter. It is capable of moving 205 million cubic feet of natural gas per day from the Utica Shale..

It will connect Eclipse Resources wells to markets. The $45 million project included additional compression and other improvements. The initial application was filed in December 2015.  FERC approved the project in early 2016.

TransCanada has acquired the Columbia Pipeline Group.

PA Local Cannot Push Illegal Fracking Bans.  A Pennsylvania drilling group is suggesting that local officials who push illegal fracking bans should be arrested and prosecuted, Kallanish Energy has learned. According to the Pennsylvania Independent Oil & Gas Association such actions by local officials could be prosecuted under state law.

The charge would be what is called “official oppression,” the association’s legal counsel Kevin Moody told the Pittsburgh Post-Gazette. It is a second-degree misdemeanor for a public official to deny or impede someone’s rights with the knowledge that such actions are illegal, Moody told the paper.

If convicted, public officials fighting hydraulic fracturing or fracking could face up to two years in prison and a fine of up to $5,000.

“We think that fits to a tee because these officials are voting for ordinances that are based on a right to self-government that simply does not exist. Local governments aren’t sovereign. They can’t have local constitutions. They know this.”

It is unclear if any county or state prosecutors would be willing to file such charges against public officials, he admitted. To date, more than 100 Pennsylvania communities have tried to ban fracking since 2010. Most have failed, especially those challenged in court.

The most egregious example is Grant Township in Indiana County where the township has taken repeated actions to block drilling and an injection well, Moody said.

PA Could Be Getting Another NatGas Power Plant.  The Pennsylvania Department of Environmental Protection will hold a public hearing on Oct. 26 on an air permit for a proposed natural gas-fired power plant in Lackawanna County.

The hearing will be from 7 to 10 p.m. at Valley View High School in Archbald in eastern Pennsylvania, Kallanish Energy is reporting.

Archbald Energy Partners wants to build a 485-megawatt plant in Archbald to burn natural gas from the Marcellus Shale to generate electricity.

The company applied for an air permit last February. That application is under review.

The plant would create 300 construction jobs and 30 permanent jobs when the plant is done.

Operations could begin in 2019.

The company is a partnership between Texas-based EmberClear and New Jersey-based DCO Energy.

It would be the second gas-fired power plant in Lackawanna County. Invenergy is building a 1,480-megawatt about 1.5 miles away in Jessup.

That $1.2 billion plant could begin operations in late 2018

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

Rig Count 

  • Baker Hughes Rig Count the week of October 7, 2016
  • PA
    • Marcellus 24 up 1
  • Ohio
    • Utica 14 unchanged
  • WV
    • Marcellus 9 down
  • TX
    • Eagle Ford 35 down 1
  • TX & NM
    • Permian Basin – 203 down 1
  • ND
    • Williston – 30 unchanged
  • CO
    • Niobrara – 16 down 1
  • TOTAL U.S. Land Rig Count 500 up 3

PA Permits September 29, to October 6, 2016

       County                Township                  E&P Companies

1.    Greene                  Greene                      Chevron
2.    Washington            Amwell                      EQT
3.    Washington            East Finley                EQT
4.    Washington            East Finley                EQT
5.    Washington            East Finley                EQT
6.    Washington            East Finley                EQT
7.    Washington            East Finley                EQT
8.    Washington            East Finley                EQT
9.    Washington            East Finley                EQT
10.    Washington            East Finley              EQT
11.    Washington            East Finley              EQT
12.    Washington            East Finley              EQT
13.    Washington            East Finley              EQT
14.    Washington            Somerset                Range 
15.    Washington            Somerset                Range
16.    Washington            Somerset                Range
17.    Washington            Somerset                Range
18.    Washington            Somerset                Range
19.    Washington            West Bethlehem      EQT

OH Permits for week ending October 1, 2016

      County                 Township            E&P Companies

1.    Belmont               Smith                  Rice
2.    Jefferson             Springfield            Chesapeake
3.    Monroe                Switzerland          Consol
4.    Monroe                Switzerland          Consol
5.    Monroe                Switzerland          Consol
6.    Monroe                Switzerland         Consol
7.    Monroe                Center                Gulfport
8.    Monroe                Center                Gulfport
9.    Monroe                Center                Gulfport
10.    Monroe              Center                Gulfport
11.    Monroe              Center                Gulfport
12.    Monroe              Center                Gulfport

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Northeast Supply Enhancement