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Expo/Industry events for the next few months

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

http://oogatechexpo.com/

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

A Look at the Future -- Utica Summit IV and Midstream PA 2016.  Our two seminars provided considerable information about what is coming as the result of the cracker plants and midstream activity in PA, OH and WV.  If you missed either of these seminars, you missed information and some opportunities.

As always, we enjoyed working with Canton Regional Chamber of Commerce on the Utica Summit.  

Utica Summit IV:

  • China is done.  It was brought to our attention by a couple of the speakers that China will not be able to compete in the plastics industry for the following reasons:
    • The low cost of energy and feedstock makes it impossible to compete with plastics manufacturers in the U.S.
    • China has a demographics problem.  The one-baby policy is now adversely affecting its workforce.  There will not be enough workers in the future.  Second, the workers in today’s workforce are moving into the middle class and want higher salaries
  • Onshoring is happening.  Two recent announcements indicate the impact of low cost energy and feedstock.  Look for more announcements like this in the future.
    • Armstrong Flooring is dismantling all of its manufacturing in China and returning it to Lancaster County, PA.  
    • U.S. Menthol is dismantling its plant in Chile and is moving it to WV where it will build another plant.
  • Where will we get the workers?  The discussion of the two planned world-class cracker plants led to the major question, “Where will we get the workers to build the cracker plants?” A panel of union leaders and educators discussed their efforts to recruit/enroll recent high school graduates in to their respective programs.  

The most quoted number of workers required to build these two cracker plants is 6,000 workers per plant.  I think workers from outside the region will have to be brought into the Appalachian Basin to get these crackers up and running. 

Midstream PA

RUMORS.  Everyone finds the rumors interesting so we’ll start with them.

  • Chief has signed MSA’s for two rigs which it will be bringing up to PA and is close to signing a third MSA for another rig.  
  • Inflection Energy is bringing a rig up to PA and will start drilling after the first of the year.  It’ll be the only rig in Lycoming County, PA.
  • When the Shell cracker plant is full construction, there will be between 180 to 250 cranes on the site at one time.  That’s almost unimaginable. 
  • Talisman has been very active in obtaining permits in Tioga County, PA over the last couple of months. In fact, it just received five more permits that past week.  
  • It has not brought any rigs up.  Talisman was purchased by Repsol, a Spanish energy company, in 2015.  The Talisman name will be changed to Repsol in early 2017.  Then, it will be bringing rigs up to Tioga County, PA.
  • Everyone is busy.  I spoke with a number of companies and all of them are busy.  All the projects that were delayed are now coming back to life and the work needs to be immediately.
  • Where are the workers?  Workers are needed for companies working in upstream and midstream.  Many of the workers who left the industry with the down turn are not coming back.  It’s going to be a challenge for many of these companies.  Worker issue is exactly what I heard in OH.  Workers from outside the Appalachian Basin will be needed in all facets of upstream, midstream and downstream over the next few years.
  • The O&G industry needs your support.  As I said in my opening remarks, three pipelines, Atlantic Sunrise, Mariner East 2, and PennEast represent over $6 billion in business that’s waiting for final approvals.  You can support these projects and other industry initiatives by attending local county commissioner meetings, FERC and PA DEP hearings as well as talking to your local government officials.  Speaking positively to family, friends and business associates is also effective. Inform, support and, speak up and show-up.
  • PA is pushing energy assets.  Denise Brinley, Strategic Initiatives, PA Department of Community & Economic Development, strongly emphasized the Commonwealth’s programs to bring downstream petrochemical companies into PA.  Old coal burning facilities and steel plants are ideal locations because of rail, road and water.
  • Could a second cracker plant becoming to PA? Brinley commented the former Wheeling–Pittsburgh Steel site in Allenport, PA is being promoted to global chemical companies.    

Utica and Marcellus Natural Gas Production Defying the Skeptics.  The Utica and Marcellus shale natural gas plays based respectively in Ohio and Pennsylvania have provided 85-90% of U.S. shale gas production growth since start of 2012. Their ongoing drilling efficiency is a key driver. In fact, increases in shale drilling efficiency have contributed to the breakdown of traditional methods that use rig counts to estimate oil and natural gas production. Frequently mentioned is how renewables continue to evolve, but so does the oil and gas industry. The shale business in particular continues to advance: rig mobility, multi-pad drilling, and other rapid evolutions mean more gas using less rigs and resources.

And there’s simply no sign of these giant plays in the Northeast slowing down, despite still lower prices in the region due to a lack of takeaway capacity. But, we could see pipeline additions of 18 Bcf/day over the next few years. And it will of course help that the three emerging baseload demand markets of power generation, industrial use, and export will continually put upward pressure on prices.

Utica Summit IV Recap. (Thank you Shane Hoover, Canton Repository.) Abundant supplies of natural gas are fueling optimism for growth in the regional plastics industry.

Although drilling has slumped in recent years, work is advancing on two multi-billion-dollar chemical plants along the Ohio River. The cracker plants would turn ethane – a component of natural gas – into chemicals used to make a range of everyday plastic items.

While not as noticeable as dozens of drilling rigs, the cracker projects could greatly boost the economies of eastern Ohio, western Pennsylvania and West Virginia — an area collectively, and nationally,  known as the Appalachian Basin.

But the potential impact won’t be seen until the next decade, according to speakers at Tuesday’s Utica Summit IV presented by the Canton Regional Chamber of Commerce, The Canton Repository and ShaleDirectories.com.

Lots of gas

The Appalachian Basin is awash  of natural gas and that’s a good thing for the plastics industry, which derives about 75 percent of its precursor chemicals from natural gas components, such as ethane and propane.

The Marcellus Shale produces about 18 billion cubic feet of natural gas a day and the Utica Shale produces 3.6 billion cubic feet a day, according to data from the U.S. Energy Information Administration.

Growth in domestic natural gas production has given North American manufacturers an edge over international competitors, said Tom Gellrich, founder of TopLine Analytics, who studies the oil and gas industry.

Even in the energy-rich Middle East, chemical feedstocks are twice as expensive as they are in North America, Gellrich said.

Cracker Plans

Some Utica and Marcellus ethane is being shipped to Europe, but the bulk goes to cracker plants on the Gulf Coast, where it is turned into ethylene and polyethylene, then shipped back to manufacturers in the Appalachian Basin.

Moving ethane and other chemicals back and forth adds to the cost of the material, but that could change with the construction of crackers.

Shell Chemical Appalachia is building a $6 billion ethane cracker near Monaca, Pennsylvania. It is the first major U.S. cracker outside the Gulf Coast.

A Thai company, PTT Global Chemical, is exploring a $5 billion project in Belmont County and has spent $100 million on project studies.

Gellrich said Shell’s decision to build in the Appalachian Basin would serve as a catalyst for similar projects in the future.

He predicted that as many as six crackers could be built in the region.

Local ethane, local dollars

Using ethane in the region rather than shipping it to other areas would have an impact in the billions of dollars, said Joe C. Eddy, president of Eagle Manufacturing, a small plastics company with 195 workers in Wellsburg, West Virginia.

If 100,000 barrels of ethane per day – about the amount the Shell cracker will use – were piped out of the area, it would add $330 million to the economy, Eddy said.

But if cracked and used by manufacturers regionally, that same amount of ethane could have an economic impact of $6.39 billion, he estimated.

“This is not something we have to look forward to for the next year,” Eddy said. “This is something we’re going to be living with for the next two to three generations.”

Ohio impact

Plastics are the third largest industry in the United States and directly employ 73,400 workers in Ohio with a direct payroll of $3.4 billion, said Stan Glover, who serves on the board of directors of SPI, the plastics industry trade association.

When dependent industries are included – such as the auto industry – 1.5 million jobs are impacted by plastics, said Glover, who is also sales director for Canton Township-based Zeiger Industries.

Zeiger builds valves and other equipment for plastics manufacturers, primarily injection molders that make everything from cellphones and medical devices to football helmets and car parts.

Right now, the plastics industry is soft, but local companies are looking forward to the opportunities offered by a cracker, including cheaper raw materials that will keep work from going overseas, Glover said.

“We have the advantage,” he said, “we’ve got to capitalize on it.”

Reach Shane at 330-580-8338 or shane.hoover@cantonrep.com

Royal Caribbean Moving to LNG Powered Ships.  The newest class of ships from Royal Caribbean Cruises (RCL) will be powered by liquefied natural gas (LNG), Kallanish Energy reports.

RCL has signed a memorandum of understanding with Finnish shipbuilder Meyer Turku for two of the new class of vessel under the project name “Icon.” The vessels will be delivered in the second quarter of 2022 and 2024.

RPS Buys Silver Hill Energy Partners in the Permian.  Private equity-backed producer Silver Hill Energy Partners, which had held merger talks with Diamondback Energy until “FANG” said this week discussions ceased, on Thursday was acquired by another independent producer, RSP Permian, for $2.4 billion in cash and stock.

Silver Hill, formed by Kanye Anderson Capital Advisors and Ridgemont Equity Partners, controls drilling rights to roughly 41,000 acres in the Permian Basin of West Texas, Kallanish Energy learns.

RSP plans to finance the transaction with $1.25 billion in cash and 31 million shares of its common stock, the Dallas-based company said.

The deal will be divided into separate transactions for two Silver Hill entities, both of which will have effective closing dates of Nov. 1.

Upon closing, Kanye Anderson, Ridgemont and other Silver Hill investors collectively will own roughly 20% of RSP’s stock. Silver Hill CEO Kyle Miller will join RSP’s board.

In other RSP Permian news, the company said it has priced an underwritten public offering of 22 million shares of its common at $39.75 per share.

The offering was upsized to 22 million shares from the original offering size of 20 million shares. RSP has granted the underwriters a 30-day option to purchase up to an additional 3.3 million shares of common.

Total gross proceeds will be roughly $874.5 million from the offering, expected to close on Oct. 18. The company intends to use the net proceeds from the offering to fund a portion of the Silver Hill purchase.

Barclays Capital and RBC Capital Markets are acting as lead joint book-running managers for the offering.

FERC Looking at Atlantic Sunrise Route.  The Federal Energy Regulatory Commission (FERC) issued a letter Thursday saying it’s evaluating certain alternatives to the Central Penn Line North and South routes, which are portions of Williams’ $3 billion, 1.7 billion cubic feet per day Atlantic Sunrise pipeline project.

The two alternative routes that are being evaluated include a potential 1.4 mile deviation, in aggregate, from the currently proposed route.

“These alternatives have been suggested in comments that have been filed in the public record for the project or identified by (Atlantic Sunrise developer) Transco,” according to the letter, a copy of which was secured by Kallanish Energy.

“An environmental impact statement (EIS) is being prepared that addresses the environmental impacts of construction and operation of the facilities proposed by (Williams unit) Transco,” the letter states. “This EIS will be used by the commission in its decision-making process to determine whether the project is in the public’s convenience and necessity.”

Comments from the affected landowners regarding the alternative routes are due no later than Nov. 14.

MSC Sues to Block New Rules.  The shale-gas industry on Thursday filed a legal challenge to block controversial new rules intended to reduce the surface impacts of oil and gas drilling in Pennsylvania.

The Marcellus Shale Coalition, the trade group representing so-called unconventional gas producers, on Thursday asked the Commonwealth Court to delay implementation of the new drilling regulations until its appeal can be decided. The new rules went into effect Saturday.

The legal action is the latest skirmish over regulation of the shale-gas industry, which critics say was able to grow rapidly in Pennsylvania under old rules designed for less-intensive drilling. The industry says that the state's laws already are among the nation’s most stringent, and that the new rules add more burdens without improving environmental protection.

The shale coalition says it is not challenging the entire package of Department of Environmental Protection regulations, known as Chapter 78a of the Pennsylvania Code. The lawsuit, assembled by the Pittsburgh law firm Babst Calland, takes narrow aim at specific provisions that the industry says are vague or are unsupported by authorizing legislation.

“These shortcomings are immediately harmful to our industry because they affect our ability to conduct business and remain competitive,” said David J. Spigelmyer, the president of the shale coalition.

The industry resisted the rule changes during the five-year drafting process, which in May claimed then-DEP Secretary John Quigley as a casualty after he tried to rally environmentalist support in a profanity-laced email. Gov. Wolf approved the new rules in June.

The new performance standards at oil- and gas-well sites ban open-air waste-storage pits, establish minimum distances that wells must be from schools and playgrounds, and add new rules for monitoring wells and cleaning up spills. The rules presume that any water contamination near a new well is the driller's fault.

They also set 100 feet as the general setback distance of a well from water resources, as well as requiring notification of state agencies if a well is within 200 feet of a public park or forest, and notification of a water utility if it is within 1,000 feet of an extraction point for public water.

Acting DEP Secretary Patrick McDonnell said last week that the revisions “increase protection for public resources and water supplies, improve data transparency, enhance access to relevant information for the public, and help provide business certainty to the industry.”

The new rules apply only to the unconventional gas industry, which includes large operators that have transformed Pennsylvania into the nation’s second-largest gas producer by using hydraulic-fracturing techniques to unlock oil and gas from deep shale formations.

Under legislative pressure, the Wolf administration set more lenient standards for the conventional gas industry, which targets shallow formations.

The industry, which has shrunk in a climate of low energy prices, contends that the new regulations would increase costs by up to 30 percent, or $2 million per well. The shale coalition says the provisions it is challenging might impose an initial cost of $40 million to $70 million and up to $16 million a year thereafter.

The legal action specifically targets rules that it contends are not authorized by several laws, including surviving sections of Act 13, the 2012 oil and gas law that has been reviewed twice by the Pennsylvania Supreme Court.

The challenges include:

* A rule expanding the responsibility of drillers to avoid and protect threatened and endangered species, which the industry says goes beyond current state or federal law.

* A rule that requires operators to identify and plug any nearby abandoned well, which drillers say would require them to obtain access to property they do not control, and would impose plugging liability for wells the operators do not own.

* New rules governing centralized freshwater storage ponds, which the industry says are not authorized by Act 13.

* Other rules governing site restoration, spill-reporting, and waste-disposal permitting.

Stay tuned for updates.

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

http://www.shaledirectories.com/blog/

Rig Count

  • Baker Hughes Rig Count the week of October 14, 2016
     
  • PA     
    • Marcellus 25 up 1
  • Ohio 
    • Utica 14 unchanged
  • WV 
    • Marcellus 10 up 1
  • TX
    • Eagle Ford 31 down 4
  • TX & NM
    • Permian Basin – 201 down 2
  • ND
    • Williston – 30 unchanged
  • CO
    • Niobrara – 18 up 2
       
  • TOTAL U.S. Land Rig Count 513 up 13

PA Permits October 6, to October 13 2016

       County            Township               E&P Companies

1.    Butler                Winfield                 PennEnergy
2.    Susquehanna    Springville              Cabot
3.    Tioga                Hamilton                Talisman
4.    Tioga                Hamilton                Talisman    
5.    Tioga                Hamilton                Talisman
6.    Tioga                Hamilton                Talisman
7.    Tioga                Hamilton                Talisman

OH Permits for week ending October 8, 2016

       County            Township            E&P Companies

1.    Belmont            Smith                  Rice
2.    Belmont            Smith                  Rice
3.    Belmont            Smith                  Rice
4.    Noble                Beaver                Antero

Joe Barone jbarone@shaledirectories.com 610.764.1232
Vera Anderson vera@shaledirectories.com 570.337.7149

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