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Expo/Industry events for the next few months

Marcellus Utica Midstream Conference
January 24-26, 2017
David L. Lawrence Conference Center
Pittsburgh, PA 

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

Oil is over $50 Again.  NatGas Pushing $3.50.  I’m sure many of you know this.  The big question is does it remain over $50.  I’ve thought a few times in the past when we reached $50 that we were on our way to $60.  Let’s hope, but who knows.

The price of NatGas has been moving up the last week or so.  It’s getting to close to $3.50.  Months ago a few industry experts we’re predicting $3.50. NatGas was around $3.00 dollars then.  It looks like they may be right.  Let’s hope so.

FERC Approves Nexus Pipeline.  The Federal Energy Regulatory Commission on Wednesday approved the $2 billion Nexus natural gas pipeline across northern Ohio, Kallanish Energy reports.

There are no major environmental problems, the agency said in its 541-page final environmental impact statement.

The 256-mile pipeline, being developed by Nexus Gas Transmission, will “result in some adverse environmental impacts,” the agency said.

Those impacts can be reduced to acceptable levels with proposed mitigation actions, including 38 mitigation steps outlined by FERC, which oversees interstate pipelines.

The pipeline is planned to move natural gas from the Utica and Marcellus Shale plays in Ohio, West Virginia and western Pennsylvania to the Midwest, Ontario and to the Gulf Coast.

Construction is expected to begin in early 2017, and the pipeline could be in operation in the fourth quarter of next year.

The 36-inch pipeline could transport up to 1.5 billion cubic feet per day of natural gas. It is being developed by Texas-based Spectra Energy and Michigan-based DTE Energy.

The project had run into local opposition in the Akron-Canton-Medina area and near Toledo.

Spectra Energy spokesman Adam Parker told the Toledo Blade newspaper the FERC decision was “another timely, major project milestone that keeps NEXUS on track to receive its (construction) certificate in the first quarter of 2017.”

Ohio pipeline activist Paul Wohlfarth told the paper the decision was expected, given FERC’s record for approving pipeline projects.

He said he fears the project will ultimately raise natural gas prices for Ohio residents with more gas going to Ontario.

Sunoco Logistics – Energy Transfer Partners Deal.  Monday morning, two North American pipeline giants already linked, decided to deepen their relationship, as Sunoco Logistics Partners (SXL) announced its acquiring Energy Transfer Partners (ETP) in a $19.93 billion deal.

ETP shareholders will get 1.5 Sunoco units for each ETP unit they own, which equates to roughly $39.30 per unit, a slight discount to the stock’s Friday close of $39.37/unit.

ETP, which owns and operates more than 62,500 miles of natural gas and natural gas liquids pipelines, owns roughly 21% of Sunoco Logistics, which itself owns more than 8,500 miles of lines, plus terminaling and marketing assets, Kallanish Energy learns. Sunoco Logistics’ general partner is a unit of Energy Transfer.

Deal making in the midstream sector began to increase in the third quarter after several quarters of little activity, according to PwC’s quarterly mergers and acquisitions report. The firm recorded four megadeals worth more than $1 billion in the sector.

Sunoco Logistics and Energy Transfer said the combined company would increase their scale and diversification across the plays they serve. It will also more closely integrate Sunoco’s natural gas liquids business with Energy Transfer Partners’ gas gathering, processing and transportation business.

The companies project the deal will create cost savings of more than $200 million annually by 2019.

While SXL is the acquirer, there is no question which company’s executives will operate the “new” Energy Transfer Partners.

The merged company’s CEO, chief commercial officer, president and chief financial officer will be ETP’s Kelcy Warren, Mackie McCrea, Matt Ramsey and Tom Long, respectively.

“It is expected that Mike Hennigan and other members of the SXL management team will continue in leading management roles of the combined company, with the SXL business headquartered in Philadelphia,” the companies said.

The transaction is expected to close in the first quarter of 2017.

Blue Racer Shipping LNG to the Gulf.  Blue Racer Midstream has started shipping its products to the Gulf Coast on barges on the Ohio and Mississippi Rivers, Kallanish Energy reports.

The shipments of natural gas liquids are from the company’s facilities at Natrium, West Virginia, on the Ohio.

The shipments make Blue Racer’s Natrium fractionation facility the first in the Utica-Marcellus region to offer barge service for products.

Two barges, each with 10,000 barrels of NGLs, departed Natrium, company officials said. The shipments began in October, said company spokeswoman Casey Nikoloric.

Blue Racer expects to ship one to two barges per month, she told the State Journal newspaper in Charleston, West Virginia.

“The market will drive the pace of operations going forward,” she said.

Company officials had announced last June at a conference in Canton, Ohio; they were looking at barge shipments to the Gulf Coast and working with the Coast Guard on particulars. Prior to barge, products went to market from the region via rail, truck and pipeline.

Blue Racer, formed in late 2012, is a joint venture of Dominion and Caiman Energy II. It has pipelines and processing facilities in northern West Virginia and southeast Ohio.

Two More NatGas Plants Coming to OH.  Fluor will provide support to Clean Energy Future to develop two natural gas-fired power plants in Ohio, Kallanish Energy reports.

Fluor will provide initial permitting and development support services for the plants, to be built near Lordstown in Trumbull County and outside Toledo in Oregon, Lucas County at a cost of $1.6 billion.

The two companies signed a memorandum of understanding on Monday.

After the electricity-producing power plants have received all permits and regulatory and financial approvals, Fluor will provide engineering, procurement, construction and commissioning services for both facilities.

Construction on both highly efficient, combined-cycle plants is slated to begin in early 2018, with the plants beginning service in 2020.

The Trumbull Energy Center will be 940 megawatts (MW); the Oregon Energy Center will be 955 MW.

The plants are among six natural gas-fired plants being developed in Ohio to burn its Utica Shale gas.

The plants are the fourth and fifth being developed in Ohio by Clean Energy Future.

North Access Pipeline Moving Forward in NY.  National Fuel and the Buffalo, Niagara County and Southern Tier building and construction trade’s councils struck an agreement on the use of local union labor for Northern Access pipeline construction in New York state, it was announced Monday.

National Fuel Gas Supply Corporation and Empire Pipeline are developing Northern Access, a $455 million project to move natural gas through to Canada from the Marcellus Shale area in Pennsylvania.

The project calls for construction of about 100 miles of pipeline and related facilities including compressor stations in Elma and Pendleton, and a dehydration station in Wheatfield. The pipeline route will cross portions of Cattaraugus, Allegany, Erie and Niagara counties. In the four-county area, National Fuel estimates the project will generate up to 1,200 jobs, including construction jobs.

“The Northern Access Project will result in good paying jobs for union construction trades workers across Western New York,” said building and trades council President Paul Brown. “Organized labor strongly supports reducing America’s dependency on foreign energy sources and the construction of infrastructure that safely and reliably delivers energy.”

Northern Access is National Fuel's single largest investment in its almost 115-year history, according to Ronald C. Kraemer, senior vice president. The work is being financed without government subsidies or incentives.

Currently, National Fuel operates almost 10,000 miles of pipeline and 145 compressor units at 37 stations in New York and Pennsylvania. The Federal Energy Regulatory Commission has determined that, with mitigation measures developed by the company and the agency, Northern Access will not pose any significant adverse impacts on the environment.

It’s interesting how smoothly this pipeline is moving forward.  Where’s Gov. Cuomo?  This is Marcellus Shale NatGas going to Canada.  Why is Gov. Cuomo blocking the Constitution Pipeline which is moving Marcellus NatGas to the New England States?  Surprise!  Surprise! Gov. Cuomo has a double standard.

Gov. Cuomo wants Canadians to have cheaper NatGas prices than fellow Americans in New England.  

Hope for the Constitution Pipeline.  The Federal Energy Regulatory Commission has rejected a rehearing on unauthorized tree cutting associated with the $1 billion Constitution Pipeline in New York and Pennsylvania, Kallanish Energy reports.

The rehearing had been requested by New York Attorney General Eric Schneiderman. He had filed his objections last May and FERC had rejected them in July.

Trees were cut along the route, not by the pipeline company, but largely by landowners wanting to make money from the sale of wood, observers had reported.

FERC had issued an order allowing limited tree clearing, even though New York had not approved the pipeline.

The rejection of the rehearing came last week in a six-page ruling by FERC.

In a separate action, FERC also rejected a request by the Catskill Mountainkeeper and five other eco-groups to rescind a two-year extension FERC had granted to the Constitution Pipeline. The pipeline is now scheduled to be completed by Dec. 2, 2018.

Constitution Pipeline Co. had requested the extension to build the 124-mile natural gas pipeline, after New York state refused to approve the project. A lawsuit against New York is pending in the U.S. Circuit Court of Appeals.

In December 2014, FERC approved the pipeline, contingent on the project winning state water-quality permits and completing work by December 2016.

The pipeline is a joint project by Williams, Cabot Oil and Gas, Piedmont Natural Gas and WGL Holdings.

It would run from Dimock, Pennsylvania, to Schoharie County in New York, and transport 650 million cubic feet per day (MMcf/d) of Marcellus Shale natural gas, enough gas to heat 3 million homes.

Baker Hughes Is Becoming a Driller.  Oilfield services firm Baker Hughes said Tuesday it’s teaming with private equity firm CSL Capital Management and Goldman Sachs’s merchant banking division to create a hydraulic fracturing company.

Under terms of the agreement, Baker Hughes will contribute its North American land cementing and fracking businesses, which includes assets in the U.S. and Canada. Baker Hughes will own a 46.7% stake in the new company.

CSL and Goldman Sachs’s West Street Energy Partners (WSEP) will together own 53.3% of the privately-held company, and contribute $325 million in cash, Kallanish Energy finds.

About $175 million will be used to strengthen the balance sheet of the new company, while the remaining $150 million will go to Baker Hughes.

Upon closing, CSL will contribute its Allied Energy Services platform to the new company, which provides onshore fracking and cementing services in North America.

“The proposed transaction will create a pure-play pressure pumping competitor for the benefit of shareholders, customers and employees,” said Martin Craighead, CEO of Baker Hughes. “With a strong balance sheet and deep operational expertise, the new company will benefit from a sharp focus on pressure pumping to respond quickly to market dynamics and better serve customers.”

Craighead added that in line with Baker Hughes’ so-called asset-light strategy, the ownership model for the new company allows Baker Hughes to participate in the North American land pressure pumping market, while reducing its capital output.

The new company will operate under the Baker Hughes-owned BJ Services brand and will be headquartered in the Houston suburb of Tomball.

Warren Zemlak, who is the current president & CEO of Allied Energy Services, will head the new company.

About $175 million will be used to strengthen the balance sheet of the new company, while the remaining $150 million will go to Baker Hughes.

Fracking Picking Up.  (Thank you, Bloomberg.) The oilfield service companies that supply everything from sand to sophisticated robot rigs are seeking a new lease on life as America’s fracking fortunes begin to turn.

Shale drillers have added 158 rigs since May, according to Baker Hughes Inc. At the same time, companies such as Chesapeake Energy Corp. and EOG Resources Inc. have been increasing their efficiency by cramming more and more sand into individual wells, aiming to extend their reach miles further. That’s boosted sand prices roughly 25% to about $24 a ton, according to IHS Inc.

It’s an early sign that oilfield services, hard hit by a two-year slump in crude prices, are seeing the first hints of a turnaround. With spending by drillers in the lower 48 states now forecast to be $1 billion higher than analysts expected in the final three months of 2016, pricing talks are heating up as servicers face off against explorers fearful of uncertain oil prices ahead.

“Sand certainly led the way here, and that’s starting to make its way into other product lines,” James West, an Evercore ISI analyst in New York, said in a telephone interview. “It’s going to be a much more rigorous pricing recovery as we go into 2017, given the very ambitious drilling programs and production forecasts from the North American E&P industry.”

Oil-services companies sell explorers everything from the sand, water and chemicals they pump into the ground to the diesel that powers their equipment. Their services can include mapping pockets of underground oil, cementing wells in place and even breathing new life into old reservoirs.

With West Texas Intermediate crude prices now up by about 80 percent from this year’s low, the industry is starting to use higher sand prices and the added activity in oil fields ranging from Texas’s Permian Basin to the Scoop and Stack plays of Oklahoma as an excuse to reopen conversations over how much they’ll be paid, said Samir Nangia, an IHS analyst.

Already, leases for more-efficient rigs that can walk from well to well and drill out several miles sideways, are up by as much as $5,000 a day, about one-third more expensive since May, according to Evercore. Spending to drill and complete wells in the lower 48 states will be $13 billion, or about $1 billion more than previously forecast, for the final three months of the year, Jud Bailey, an analyst at Wells Fargo & Co., wrote in a Nov. 11 note to investors. He expects the strong year-end activity to carry over into next year.

Already robust demand for proppant is expected to expand over the next two years, analysts at Tudor Pickering Holt & Co. wrote Monday, Nov. 28, in a note to investors. Oil and natural gas wells in the U.S. are now expected to swallow 120 million tons of sand in 2018, up from a previous forecast of 95 million, according to the note.

IHS’s Nangia said service companies may boost prices by almost 10% a year through 2021. "We’re about 30 percent below full-cycle pricing, maybe even 10% below cash costs for a lot of the pumpers," he said.

For months, the service companies have been saying that the prices they’re able to charge aren’t sustainable. It’s a claim that’s been largely supported as more than 100 contractors in North America have gone bankrupt over the past two years, according to the law firm Haynes & Boone LLP.

While stock indexes for both explorers and servicers remain down by almost half since the downturn began in mid-2014, explorers are recovering more quickly. Both groups touched bottom on Jan. 20. Since then, oil explorers in the Standard & Poor’s 500 Index are up 59%, compared with a 28% climb in the Philadelphia Oil Services Index.

Negotiations between the sides won’t be easy, according to recent statements by Jeff Miller, president of Halliburton Co., the world’s largest fracking service provider, and Bob Dudley, the chief executive officer of BP Plc, the London-based explorer.

In a conference call with analysts and investors last month, Miller referred to pricing talks with explorers as "a brawl." Around the same time, Dudley said at the Oil & Money conference in London that he wants 75% of the cost reductions producers won during the market downturn to "stick," even if crude prices continue to rise.

The talks are occurring as oilfield contractors are increasingly teaming up with equipment makers in an effort to cut their own costs and offer oil explorers more streamlined and comprehensive options for the services and gear needed to siphon crude out of the ground. Schlumberger Ltd., for instance, bought manufacturer Cameron International Corp. this year. That was followed by an announced tie-up between Baker Hughes and General Electric Co.’s oilfield business.

Much of what happens from here will probably depend on what happens halfway around the world in Vienna. In September, OPEC said it would discuss an agreement to cut production to a range of 32.5 million to 33 million barrels a day. Since then, Iraq, Iran, Nigeria and Libya have sought exemptions. The 14-member group will meet in the Austrian capital on Wednesday, Nov. 30.

The oilfield price increases are “not a leap forward,” said Chase Mulvehill, an analyst at Wolfe Research. "This is a gradual shift upward in pricing, and that probably continues as we move into 2017, assuming that OPEC cooperates. If OPEC holds the line or production continues to increase with OPEC that puts a risk to the 2017 recovery story for U.S. onshore.”

Oil futures rose as much as 2.8% to $47.33 in intraday trading on the New York Mercantile Exchange. In order for onshore explorers to make more long-term budget decisions, many would trade the higher, volatile oil prices for more consistency, according to IHS’s Nangia.

"Everybody feels that if we can be at $50 a barrel or higher, that would be helpful," Nangia said. "Stability helps."

No Change to Dakota Access Route.  Energy Transfer Partners CEO Kelcy Warren said his company will not consider rerouting its Dakota Access oil pipeline despite concerns voiced by U.S. Native American groups, according to an Associated Press interview published Friday.

President Obama said earlier this month the federal government, i.e., the Army Corps of Engineers, was examining ways to reroute the pipeline.

Warren told AP he would like to meet with tribal leaders to ease their concerns about the project, Kallanish Energy finds.

The Dakota Access Pipeline has been delayed since September, when federal regulators, including the Corps, decided to re-review permitting under Lake Oahe, a federally owned parcel of land where the pipeline is proposed to cross.

The stoppage came after protests from the Standing Rock Sioux tribe, whose reservation is adjacent to the federal land where the pipeline runs. The Corps elected to review their permitting again, and this past week deferred a decision, citing concerns about the tribe having been moved off its lands in the past.

On Friday, North Dakota Governor Jack Dalrymple asked the Army to resolve the permitting issues, citing protests that have sometimes turned violent. He also asked for assistance in law enforcement from federal authorities.

“Further delays simply prolong the risks to public safety, prolong the hardships endured by area residents and increase costs incurred by the state of North Dakota and Morton County,” Dalrymple said, in a statement.

The 1,172-mile Dakota Access is expected to flow crude oil from North Dakota’s Bakken shale play to Patoka, Illinois, en route to the Gulf of Mexico.

More NatGas Going to Mexico.  Not Jobs.  U.S. pipeline exports of natural gas continued to grow in 2016, having doubled since 2009, the Energy Information Administration reports.

Most of the growth is attributable to increasing exports to Mexico, which have accounted for more than half of all U.S. natural gas exports since April 2015, Kallanish Energy learns.

In August, the U.S. exported 4.2 billion cubic feet per day (Bcf/d) of natural gas to Mexico via pipelines. U.S. daily pipeline exports to Mexico through August 2016 are at a yearly average of 3.6 Bcf/d — 25% above the year-ago level and 85% above the five-year (2011–15) average level.

In 2015, Mexico’s energy ministry (SENER) announced a five-year plan to significantly expand the country’s natural gas pipeline network to accommodate higher levels of natural gas imports from its northern neighbor.

“These imports would help meet increasing power demand, offset declining domestic natural gas production, reduce reliance on LNG imports, and create new markets for natural gas in currently supply-constrained regions,” according to EIA.

The plan proposed 12 pipeline additions, increasing the existing network capacity and adding more than 3,200 miles of new pipeline throughout Mexico.

According to SENER’s July 2016 update, contracts have been awarded for seven of the 12 pipeline projects.

Growth in Mexico’s domestic electricity market has largely driven the country’s increasing natural gas usage. Because of the availability and affordability of U.S. pipeline natural gas, Mexico is meeting its growing electricity demand with generation from new natural gas-fired plants.

U.S. natural gas exports to Mexico are expected to continue to grow short-term, and SENER forecasts a widening gap between domestic production and demand through the end of the decade.

Mexican imports of natural gas continue to outpace most projections. The 4.1 Bcf/d exported in August 2016 matched the level originally forecast in 2013 to be reached in 2018.

However, uncertainty in Mexican demand growth, particularly from the power generation sector as natural gas-fired capacity competes with renewables and nuclear generation, may slow the increase in Mexico’s natural gas imports, leading to lower pipeline capacity utilization.

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

Rig Count 

  • Baker Hughes Rig Count the week of December, 2016
  • PA
    • Marcellus 29 unchanged
  • Ohio
    • Utica 18 unchanged
  • WV
    • Marcellus 10 unchanged
  • TX
    • Eagle Ford 40 up 2
  • TX & NM
    • Permian Basin – 235 up 7
  • ND
    • Williston – 31 down 2
  • CO
    • Niobrara – 18 down 2
  • TOTAL U.S. Land Rig Count 574 up 6

PA Permits November 17, to December 1, 2016

       County                Township                   E&P Companies

1.    Beaver                New Sewickley            PennEnergy
2.    Beaver                New Sewickley            PennEnergy
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.    Bradford                Columbia                  Talisman
10.    Bradford                Columbia                Talisman
11.    Cameron                Shippen                  Seneca
12.    Lycoming                Eldred                   Inflection
13.    Lycoming                Eldred                   Inflection
14.    Susquehanna            Auburn                Chesapeake
15.    Susquehanna            Auburn                Chesapeake
16.    Susquehanna            Hartford               Cabot
17.    Susquehanna            Hartford               Cabot
18.    Susquehanna            Hartford               Cabot
19.    Susquehanna            Hartford               Cabot
20.    Susquehanna            Hartford               Cabot
21.    Susquehanna            Hartford               Cabot
22.    Susquehanna            Harford                Cabot
23.    Susquehanna            Hartford               Cabot
24.    Susquehanna            Hartford               Cabot
25.    Susquehanna            Hartford               Cabot
26.    Susquehanna            Hartford               Cabot
27.    Susquehanna            Hartford               Cabot
28.    Susquehanna            Hartford               Cabot
29.    Tioga                        Delmar                Shell
30.    Tioga                        Delmar                Shell
31.    Tioga                        Delmar                Shell
32.    Tioga                        Delmar                Shell
33.    Tioga                       Delmar                Shell
34.    Tioga                       Delmar                Shell
35.    Tioga                       Delmar                Shell
36.    Tioga                       Delmar                Shell
37.    Washington            Amwell                  EQT
38.    Washington            Amwell                  EQT
39.    Washington            Amwell                  EQT
40.    Washington            West Finley           Range
41.    Washington            West Finley           Range
42.    Washington            West Finley           Range
43.    Wyoming                Forkston               SWN
44.    Wyoming                Forkston               SWN
45.    Wyoming                Meshoppen           Warren
46.    Wyoming                Meshoppen           Warren
47.    Wyoming                Meshoppen            Warren

OH Permits for week ending November 26, 2016

      County                  Township              E&P Companies

1.    Belmont                Somerset                Gulfport
2.    Belmont                Somerset                Gulfport
3.    Belmont                Somerset                Gulfport
4.    Belmont                Somerset                Gulfport
5.    Belmont                Somerset                Gulfport
6.    Belmont                Colrain                   Ascent Resources
7.    Guernsey              Londonderry            Ascent Resources
8.    Guernsey              Londonderry            Ascent Resources
9.    Guernsey              Londonderry            Ascent Resources
10.    Guernsey            Londonderry            Ascent Resources
11.    Monroe                Salem                    Statoil

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Utica Summit 2019