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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
http://www.marcellusmidstream.com/ 

Upstream PA 2017
March 21, 2017
Penn Stater Conference Center
State College, PA
http://upstreampa.com/  

Appalachian Storage Hub Conference
June 15, 2017
Hilton Garden Inn
Southpointe, PA
http://www.appastorage.com/
 

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

EQT’s Drilling Plans.  EQT Corp. said it plans to drill 119 wells in the Marcellus Shale play next year, with 76 in Pennsylvania and the remainder in West Virginia.

It also plans to drill 61 Upper Devonian wells which will be limited to co-development on Marcellus pads in Pennsylvania, and seven deep Utica exploratory wells.

EQT announced its 2017 capital expenditures forecast of $1.5 billion and said almost all of it, or $1.3 billion, is for well development. It did not include business development and land acquisitions.

EQT also announced a modification to its midstream agreement with Williams Ohio Valley Midstream LLC related to the dedicated portion of the approximately 62,500 Marcellus acres EQT acquired from Statoil USA Onshore Properties, Inc. earlier this year.

Under the new agreement, EQT has committed firm volumes of 50 MMcfe per day initially and growing to 200 MMcfe per day by the fourth year.

In addition to the existing right to provide wellhead gathering services, EQT Midstream Partners LP can now provide high pressure pipeline services on the volume in excess of the commitment.

EQM is coordinating with EQT Production to design a midstream system to support the Marcellus well development plans on this acreage. The investment opportunity for EQM is estimated to be $600 million for full buildout of wellhead gathering and high pressure pipeline services.

The End of an Era: Backlog in the Marcellus and Utica. Matthew Hoza, BTU Analytics.   The era of substantial backlog in the Marcellus and Utica is drawing to a close as inventories continue to dwindle. For the past few years, operators in Appalachia have relied on these inventories of DUCs (drilled, uncompleted wells) and COBs (completed wells on backlog) as low-cost sources of production. While that crutch for producers will be gone shortly, it must be said that backlog is never going to be gone for good. First of all, there is a natural working backlog of about 6-9 months in the Northeast that will persist. But even excess backlog, which are any wells in backlog beyond 6-9 months, is expected to persist. So how can we have both the end of backlog, yet inventories of excess backlog persist? Turns out like in many other industries, location is key.

Let’s use Pennsylvania as an example since they provide the most frequent and up-to-date information. BTU Analytics breaks Pennsylvania into four distinct areas: Northeast PA, Central PA, West PA, and South PA. The map below shows those four sub-locations with their current excess backlog that BTU models during the forecasting process for our Upstream Outlook and Northeast Gas Outlook.

As you can see, a disproportionate amount of backlog resides in Central Pennsylvania, an area not known for favorable natural gas economics, and especially challenged in the low-price environment Pennsylvania has been experiencing for some time. Economics plays a major role on how backlog is drawn down. Why spend the capital to complete a well that might have been spud in 2014, when more prolific wells can be drilled and completed today?

Looking back in history we can see how this situation evolved to get us where we are today. The graphic below gives an historical look at excess backlog levels by region.

The most striking characteristic about the above graphic is how far excess backlogs have fallen, from 1,600 in 2013 to less than half of that in the fourth quarter of 2016. The second characteristic to note is not all regions shared in the decline equally. Northeast Pennsylvania has shed the most excess backlog inventory, while Central Pennsylvania has remained essentially flat. Production trends have shown a similar disproportionate pattern with Northeast Pennsylvania production growing 7.7 Bcf/d since 2010 and Central Pennsylvania growing only 0.2 Bcf/d.

While we have been talking exclusively about Pennsylvania, this same concept applies to parts of Ohio and West Virginia as well. So, is the age of backlog coming to a close? Yes, backlog, where it matters most, will soon be depleted, meaning rigs will need to pick up the pace in some places. However, remnants of the bygone era will always remain.

Matthew Hoza spoke at Shale Directories Upstream PA 2016 seminar.

Patterson-UTI Energy Buys Seventy Seven Energy.  Contract driller/pressure pumper Patterson-UTI Energy and oilfield services firm Seventy Seven Energy said late Monday Patterson will acquire Seventy Seven in an all-stock deal valued at $1.76 billion.

The deal comes just four months after Seventy Seven Energy exited Chapter 11 bankruptcy, which took the Oklahoma City-based company just two months to complete.

Patterson-UTI expects to achieve synergies in excess of $50 million and believes, excluding transaction costs, this merger will be accretive to cash flow per share, Kallanish Energy learns.

Following the closing of the transaction, expected in the first quarter of 2017, Patterson-UTI will have one of the largest and most modern pressure pumping fleets in the industry, with more than 1.5 million hydraulic fracturing horsepower both available and located in some of the most prolific oil and gas regions in the U.S.

The deal will further solidify Patterson-UTI as a leader in the U.S. land drilling market with 201 high-spec rigs, according to the companies.

“As Seventy Seven Energy emerged from its recent financial restructuring, we saw an opportunity to engage a partner that is a great strategic fit for Patterson-UTI,” said Mark S. Siegel, Patterson-UTI’s chairman.

Under the terms of the transaction, Patterson-UTI will acquire all of the issued and outstanding shares of common stock of Seventy Seven Energy, in exchange for approximately 49.6 million shares of common of Patterson-UTI.

The transaction values Seventy Seven Energy at roughly $1.76 billion, assuming the issuance of 49.6 million shares of Patterson-UTI common stock at Monday’s closing price of $28.67, plus approximately $336 million of Seventy Seven Energy’s debt net of cash and warrant proceeds.

Shareholders of Seventy Seven Energy would own roughly 25% of the combined company.

“The merger combines two strategically aligned companies into one company that will be financially well-positioned and a leader in U.S. land,” said Jerry Winchester, Seventy Seven Energy’s CEO. “Given the changes our company and industry have been through the past two years, this merger is the right decision for our shareholders, employees and the oilfield services industry as a whole.”

The terms of the merger were unanimously approved by the boards of both companies.  Additionally, Patterson-UTI has entered into a voting agreement with three shareholders of Seventy Seven Energy, including BlueMountain Capital Management, Axar Capital Management and Mudrick Capital Management, which collectively represent more than 50% of the outstanding shares of common of Seventy Seven Energy.

Texas Drilling Permits down Slightly.  In November, Texas issued 673 original drilling permits, a slight drop from a year ago, Kallanish Energy reports.

The state issued 687 permits issued in November 2015, according to the Texas Railroad Commission, which oversees drilling in Texas.

The 673 permits included 581 permits to drill new oil or gas wells, 10 to re-enter plugged well bores and 82 to re-complete existing well bores, the agency said in a report released last week.

The breakdown on those 673 permits is 145, oil; 38, natural gas; 449 oil or gas; 36 injection; five, other permits.

Permits for Texas well completions showed a big drop, the agency said. In November 2016, Texas processed permits for 342 oil, 151 gas, 24 injection and one other completion.

That compares to 776 oil, 150 gas, 35 injection and four other completions a year earlier, the commission reported.

Total 2016 well completions in Texas as of Dec. 2, was 9,923, down from 18,510 from a year earlier, a drop of 46.4%.

According to well services company Baker Hughes, Texas has 286 drilling rigs at work, as of Dec. 2. That represents about 48% of active rigs in the U.S.

The top area for permits to drill oil and gas wells was around Midland in West Texas with 291 permits. No. 2 was the Refugio Area north of Corpus Christi with 73 and the Lubbock Area was third with 64.

The top areas for oil well completions were the Midland Area with 109, the San Antonio Area with 73 and the Refugio Area with 32.

The top areas for natural gas well completions were Southeast Texas with 38, followed by the Refugio Area with 28 and the San Antonio Area with 27.

EPA Comes up with “No Decision” on fracking.  Six years of investigation and $29 million spent getting to the bottom of whether or not hydraulic fracturing, or fracking, contaminates drinking water, finally came to a head Tuesday, as the U.S. Environmental Protection Agency released its final report.

The bottom line? EPA doesn’t know.

The massive report – the executive summary alone totals 50 pages — issued yesterday said fracking poses a risk to drinking water in some circumstances, but a lack of information precludes a definitive statement on how severe the risk is, Kallanish Energy learns.

I wonder if the data showed that fracking doesn’t harm the environment, but did not want to support.  Subsequently, there is a “no decision” result.

Thank God we have a new proposed EPA director who bring some reality and balance to the organization.  I hope EPA is considerably down-sized.  We do not need all those bureaucrats working overtime to kill the O&G industry in the U.S.

NatGas Production Will Be up in Jan. 2017.  Natural gas production from the seven most productive plays in the Lower 48 States is projected to increase from December to January – the first increase in more than 18 months – the Energy Information Administration projects.

The EIA’s monthly Drilling Productivity Report (DPR) projects natural gas production will rise 88 million cubic feet per day (MMcf/d) in January, from 47.42 billion cubic feet per day (Bcf/d), to a projected 47.51 Bcf/d.

The December DPR expects four of the seven top drilling areas, including the Haynesville, Marcellus, Niobrara and Permian, will see a month-to-month natural gas increase.

The largest jump by far is expected in the Marcellus, projected to total more than 18.46 Bcf/d in January, up 160 MMcf/d from December’s 18.30 Bcf/d production, Kallanish Energy finds.

Abundant and Cheap NatGas Propels the Chemical Industry.  The U.S. chemistry business is strong and getting stronger, according to the American Chemistry Council’s (ACC) just-released “Year End 2016 Chemical Industry Situation and Outlook.”

Despite a contraction this year, U.S. chemical production (excluding pharmaceuticals) is expected to realize overall growth of 1.6%, followed by 3.6% growth next year, and 4.8% in 2018.

“American chemistry is on the move,” said Kevin Swift, chief economist of ACC and lead author of the report. “The competitive advantage the U.S. still maintains, driven by access to affordable and abundant supplies of natural gas, continues to offset significant headwinds, including an overall drop in business investment, a rebalancing in the oil and gas sector, soft export markets, and a high dollar.”

According to the report, output gains were led by agricultural chemicals, coatings and other specialties, as well as bulk petrochemicals and organics and plastic resins, all areas aided by renewed competitiveness arising from shale gas. Advances in manufacturing and exports during 2017 and beyond will drive increased demand for basic chemicals and improving manufacturing activity is expected to support growth for most specialty segments.

Swift said production grew in every major chemical producing region in the country this year. Over the next five years, the most dynamic growth will occur in the Gulf Coast region, followed by the Ohio Valley and Southeast regions, Kallanish Energy understands.

“In the long-term, the U.S. chemical industry will grow faster than the overall economy, and by 2020, the U.S. chemical industry sales are expected to exceed $1 trillion,” the ACC projects.

U.S. basic chemicals, while benefiting from the shale gas advantage, were constrained by weakness in manufacturing and export markets. With new capacity coming online, production volume growth will grow to 4.2 % next year and exceed 6.0 % per year during 2018-19.

In the specialties chemical segment, production will pick up and grow to 3.0 % next year. Performance in these sectors has continued to be dampened by oilfield and mining chemicals, but demand is expected to grow as the oil and gas sector recovers.

As of December 2016, more than 275 new chemical production projects have been announced since 2010, worth more than $170 billion, with 49 % already complete or under construction.

Ohio Public Land Leased for Shale Drilling.  The U.S. Department of the Interior and its Bureau of Land Management on Tuesday leased the first public lands in Ohio for shale drilling, Kallanish Energy reports.

BLM staged an online, competitive auction for 17 parcels totaling 719 acres in the Wayne National Forest in southern Ohio, despite protests from environmentalists opposed to leasing.

Initially, BLM had proposed leasing 33 parcels totaling 1,600 acres in the Wayne. That additional land is subject to further review and could be leased at a later time.

The prices offered by drillers ranged from $2,000 to more than $5,000 an acre, depending on location.

BLM also rejected protests filed against the leasing and said the decision to lease was right and proper under federal law. The leased parcels are in Washington, Noble and Monroe counties.

Leasing in the Ohio national forest has been under discussion since 2011. Opponents had filed a petition with more than 92,000 signatures.

Groups against the drilling include the Ohio Environmental Council, Sierra Club, Friends of the Earth, the Center for Biological Diversity and Heartwood.

In October, the BLM said there would be no significant impacts from drilling in the Wayne National Forest. The agency has been looking at opening up roughly 18,000 acres in the national forest’s Marietta District for drilling. Additional areas would be leased later.

The agency has been under pressure from landowners with mineral rights who support the drilling, and from eco-groups which have been fighting the proposal.

Energy companies are interested in drilling in the three counties, especially in Monroe, one of the current Utica Shale drilling hot spots in Ohio for natural gas.

Opponents fear lease sales will open the door for hydraulic fracturing, or fracking, on public lands in the national forest.

At present, there are about 1,200 vertical-only wells in the 240,000-acre Wayne National Forest that is a patchwork quilt of federal and private lands.

The auction also included 35 acres in Arkansas and 40 acres in Mississippi.

Diamondback Buys Bingham in the Permian.  Diamondback Energy announced Wednesday it’s purchasing Brigham Resources Operating and Brigham Resources Midstream for $2.43 billion in cash and stock, a move to add to its oil assets in Texas, Kallanish Energy reports.

Diamondback said the move would add more than 76,000 acres of leasehold interests in Pecos and Reeves counties in Texas to its portfolio, giving the oil and natural gas company roughly 182,000 net surface acres in the Permian Basin.

“With Diamondback’s proven ability to execute, we now believe we have the resource and acreage base to efficiently support 15 to 20 operated rigs,” Diamondback CEO Travis Stice said.

November 2016 average net production from the acquired leasehold was 9,482 barrels of oil-equivalent per day (BOE/d); 77% was oil. Included in the deal is existing infrastructure valued at roughly $50 million.

“This transaction represents a unique opportunity to place our Southern Delaware Basin assets in the hands of one of the premier value creators and operators in the Permian Basin,” said Gene Shepherd, CEO OF Brigham Resources.

Brigham is sponsored by Warburg Pincus, Yorktown and Pine Brook.

“We believe our near-term acceleration across our asset base, along with the production from this acquisition, will put us in a position to achieve over 60% production growth in 2017 at the midpoint of our current guidance range,” Stice said.

Pro forma for the pending acquisition, Diamondback is increasing its preliminary full-year 2017 production guidance to a range of 64,000 to 73,000 BOE/d – up 25% from the midpoint of the prior range of 52,000 to 58,000 BOE/d.

The acquisition is expected to close at the end of February 2017, and the effective date of the transaction is Jan. 1.

Baytex Makes Big Push in the Eagle Ford.  Baytex Energy said it plans to spend 70% of its 2017 capital budget drilling in the Eagle Ford Shale in South Texas, Kallanish Energy reports.

The company, with offices in Calgary, Alberta, said it plans to have four to five drilling rigs and two completion crews at work in the Eagle Ford in 2017. The company operated two to three rigs in the Eagle Ford in the third quarter.

With the additional rigs, Baytex Energy said it plans to begin production of 34 net Eagle Ford wells in 2017. It said it will spend about $5 million per well in the Eagle Ford.

The rest of the capital budget will be spent in Canada, largely in its heavy oil assets at Peace River and Lloydminster, with new drilling in both areas slated for 2017.

The company said it expects its capital budget to be between $300 million and $350 million, designed to produce average annual production of 66,000 to 70,000 barrels of oil-equivalent per day (BOE/d). That would result in a 2016-2017 growth rate of 3% to 4%, said CEO James Bowzer, in a statement.

Up to 89% of the capital budget will be spent on drilling and completion activities, the company said.

The company also announced president Ed LaFehr will succeed retiring Bowzer as CEO in May 2017. Bowzer has been CEO since September 2012.

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 December 16, 2016
     
  • PA     
    • Marcellus 31 unchanged
  • Ohio
    • Utica 18 unchanged
  • WV 
    • Marcellus 10 unchanged
  • TX
    • Eagle Ford 44 up 1
  • TX & NM
    • Permian Basin – 258 up 12
  • ND
    • Williston – 31 down 1
  • CO
    • Niobrara – 24 unchanged
       
  • TOTAL U.S. Land Rig Count 614 up 13

PA Permits December 8, to December 15, 2016

       County                 Township        E&P Companies

1.    Butler                   Jefferson           PennEnergy
2.    Susquehanna        New Milford        SWN
3.    Susquehanna        New Milford        SWN
4.    Susquehanna        New Milford        SWN
5.    Susquehanna        New Milford        SWN
6.    Susquehanna        New Milford        SWN

OH Permits for week ending December 10, 2016

       County    Township    E&P Companies

1.    Belmont    Richland    XTO Energy
2.    Harrison    Monroe      Chesapeake

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

Northeast Supply Enhancement