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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 

PIOGA Winter Meeting
February 1, 2017
Rivers Casino, Pittsburgh, PA 

Upstream PA 2017
March 21, 2017
Penn Stater Conference Center
State College, PA  

Appalachian Storage Hub Conference
June 15, 2017
Hilton Garden Inn
Southpointe, PA 

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

NatGas Prices Going Up in 2017.  The Henry Hub natural gas spot price averaged $2.51 per million Btu (MMBtu) in 2016, and is expected to increase to an average $3.55/MMBtu in 2017, then average $3.73/MMBtu in 2018.

Prices generally increased throughout 2016 because of high natural gas use for electricity generation during the hot summer and because of declining production, according to the Energy Information Administration’s latest Short-Term Energy Outlook (STEO).

Henry Hub spot prices in December 2016 averaged $3.59/MMBtu, when inventories fell below the five-year average, but the first time the price averaged more than $3/MMBtu for a month since December 2014, Kallanish Energy learns.

Higher residential and commercial space heating demand during the first quarter of 2017 compared with a year earlier (which was very warm) is expected to keep prices above $3.50/MMBtu into April, STEO states.

With natural gas production also expected to be lower than year-ago levels in the first quarter, EIA expects inventory levels to be below the previous five-year average through much of the winter, putting upward pressure on prices.

In 2018, upward price pressures are expected to continue, as both domestic consumption and exports growth are forecast to grow. Natural gas futures contracts for April 2017 delivery traded during the five-day period ending Jan. 5, averaged $3.38/MMBtu. Current options and futures prices indicate market participants place the lower and upper bounds for the 95% confidence level for April 2017 contracts at $2.39/MMBtu and $4.77/MMBtu, respectively.

One year ago, the natural gas futures contracts for April 2016 delivery averaged $2.38/MMBtu, and the corresponding lower and upper limits of the 95% confidence level were $1.61/MMBtu and $3.52/MMBtu, respectively.

EIA Estimates NatGas Production Up in 2017 and 2018. The Energy Information Administration estimates dry natural gas production averaged 72.4 billion cubic feet per day (Bcf/d) in 2016, down 1.8 Bcf/d (2.4%) from 2015 — the first time annual average natural gas production has fallen since 2005.

Production of marketed natural gas fell 1.8% in 2016 from 2015 levels, Kallanish Energy finds. The higher decline rate for dry natural gas production compared with marketed production reflects higher rates of ethane recovery, according to EIA’s just-released Short-Term Energy Outlook (STEO).

Dry natural gas production is forecast to increase in 2017 and 2018, rising by 1.4 Bcf/d (2.0%), and by 2.8 Bcf/d (3.8%), respectively. The return to increasing production reflects a forecast of higher Henry Hub natural gas spot prices, as well as pipeline buildout, particularly in the Marcellus and Utica Shale plays.

Natural gas pipeline exports increased by 1.0 Bcf/d (21.7%), to 5.9 Bcf/d in 2016, largely because of rising exports to Mexico. EIA expects pipeline exports of natural gas to continue rising because of growing demand from Mexico’s electric power sector and because of flat natural gas production in Mexico.

Gross pipeline exports are expected to increase by 0.1 Bcf/d in 2017 and by 0.4 Bcf/d in 2018, EIA/STEO projects. Liquefied natural gas (LNG) exports increased from almost zero in 2015, to an average 0.5 Bcf/d in 2016, with the startup of Cheniere Energy’s Sabine Pass LNG liquefaction plant in Louisiana, which sent out its first cargo last February.

LNG exports are expected to average 1.4 Bcf/d in 2017, as Sabine Pass ramps up capacity in mid-year. In 2018, LNG exports are forecast to average 2.6 Bcf/d, the growth driven by the expected start of Cove Point LNG in Maryland in December 2017, and new projects at Cameron LNG and Freeport LNG on the Gulf Coast during the second half of 2018.

The U.S. is expected to become a net exporter of natural gas in 2018, with net exports averaging 0.6 Bcf/d.

Wood Mackenzie Forecasts Projects Doubling in 2017.  The oil industry in 2017 finally shakes off the effects of the worst downturn in decades, as companies more than double project approvals and increase exploration spending for the first time in three years, analytics/consulting firm Wood Mackenzie projects.

Companies will give the go-ahead to more than 20 oil and gas fields for development, compared with nine in 2016, the Edinburgh, Scotland-based Wood Mackenzie said in a report Wednesday.

Producers, led by U.S. shale operators, will also increase spending on exploring for new oil and developing existing projects by 3%, to $450 billion following two years of cuts.

“2017 will demonstrate how efficient the oil and gas industry has become; showing projects in better shape all round,” said Malcolm Dickson, a principal analyst for Upstream Oil and Gas for Wood Mackenzie.

Capital expenditure deflation has averaged 20% over the past two years, Kallanish Energy understands. With service sector margins thin, Wood Mackenzie believes there’s now only room for small reductions, and capital costs are expected to fall by an average of 3% to 7%.

U.S. tight oil, and the Permian Basin in particular, will lead the way, distinguished by low breakevens, scale and flexibility, according to Wood Mackenzie. Lower 48 spending is set to grow by 23%, to $61 billion, with upside if oil prices rise strongly and U.S. Independents are emboldened by a Donald Trump presidency.

Permian Is Hot.  Right now, there is no more valuable crude oil-soaked land in the U.S. than 75,000 square miles in West Texas/southeast New Mexico: the Permian Basin.

For nearly a century, the Permian, primarily via the basin’s two major divisions, the Delaware and Midland basins, has been a major producing region.

Parsley Energy Buys More Assets in the Permian.  Parsley Energy said it’s entered into deals to acquire undeveloped acreage and producing oil and gas properties adjacent to its operating areas in the Midland and Southern Delaware basins from unnamed sellers for $607 million in cash.

In an unrelated deal, the Austin, Texas-based independent also acquired certain mineral interests in the Southern Delaware Basin for $43 million.

Parsley intends to finance these acquisitions through an equity offering announced concurrently with the acquisitions, Kallanish Energy learns.

“We are excited to announce a set of acquisitions that add to our premier asset bases in both the Midland and Southern Delaware Basins,” stated Bryan Sheffield, Chairman and Chief Executive Officer of Parsley Energy.

Texas Well Completions Way Down in 2016.  Texas reports total well completions in 2016 were 10,468, down from 19,503 in 2015, a 46.3% drop, Kallanish Energy reports.

Texas also issued 1,009 original drilling permits and 515 completion permits in December 2016. That compares to 727 drilling permits issued in December 2015, according to the Texas Railroad Commission, which oversees drilling in the state.

The December total includes 909 permits for new oil or natural gas wells, 17 to re-enter plugged bore holes, and 83 permits for re-completions of existing well bores, the state agency said.

The breakdown of well types for the December permits are 267 oil, 57 gas, 612 oil or gas, 62 injection and 11 other-type wells.

In December 2016, the commission issued 430 oil, 93 gas, 20 injection and two other completions. That compares to 788 oil, 151 gas, 53 injection and one other completion a year earlier.

The Midland area in the Permian Basin in West Texas was No. 1, with 374 permits to drill oil/gas wells. No. 2 was the San Antonio area with 143 permits. Third was the Refugio area north of Corpus Christi.

For oil completions, the top regions are Midland, San Antonio and Lubbock. For gas completions, the top three areas are Southeast Texas, Refugio and San Antonio/Texas Panhandle (tie).

Texas is the No. 1 drilling state in the U.S. According to Baker Hughes, Texas has 327 drilling rigs at work, about 49% of all active rigs in the U.S.

“We continue to focus on digestible bolt-on acreage that can be rapidly assimilated into our development program,” said Bryan Sheffield, Parsley CEO. “Together, these properties will increase our net acreage by more than 15% … .”

Parsley is acquiring roughly 25,200 gross/17,800 net Midland Basin leasehold acres in Texas’ Upton, Reagan, Glasscock, and Midland counties for roughly $402 million. Estimated current net production from the leasehold totals 1,200 barrels of oil-equivalent per day (BOE/d).

Transactions not yet closed are scheduled to close on Feb. 27.

In the southern Delaware Basin, Parsley is acquiring roughly 6,600 gross/5,200 net acres in Texas’ Reeves, Pecos, and Ward counties for approximately $205 million. Estimated current net production totals roughly 1,100 BOE/d.

The mineral rights deal equals a 17% average royalty interest in roughly 3,900 net acres, or approximately 660 net royalty acres, in Reeves and Pecos counties.

Transactions not yet closed are slated to be completed on Jan. 31.

Chesapeake Getting Stronger.  Chesapeake CEO Doug Lawler said Thursday his company’s balance sheet is the strongest it’s been in 25 years, but more debt reduction – including more assets sales – will occur in the next 2-3 years.

The independent producer saw its debt burden soar over $10 billion as it pursed a philosophy of banking land under late founder and former CEO Aubrey McClendon, beginning roughly a decade ago. Chesapeake has been moving aggressively to reduce its debt since Lawler became CEO in June 2013.

“We have reduced our leverage by $10.9 billion; we have 11.3 billion barrels of net recoverable resources across our asset base we can’t drill fast enough, we don’t have the capital funding, the cash flow to do so. So we are going to be continuing to look at additional asset sales,” Lawler told CNBC’s Power Lunch Thursday (monitored by Kallanish Energy).

Lawler said Chesapeake expects to reduce debt by an additional $2 billion to $3 billion during the next two to three years, with asset sales part of the reduction. He added Chesapeake is profitable at $3 natural gas, and $50 crude oil.

Shares of Chesapeake have risen more than 40% over the last year, to roughly $7 a share. The stock plunged from more than $60 a share in July 2008, to roughly $1.50 last February, as natural gas and oil prices dropped and as Chesapeake sought to get its financial operations in order.

Transco Wants to Get Moving on Atlantic Sunrise Pipeline.  The company behind the 197.7-mile Atlantic Sunrise Pipeline is asking the Federal Energy Regulatory Commission to issue a final certificate by Feb. 16, so it can begin construction, Kallanish Energy reports.

That request was contained in a two-page letter dated Jan. 5, signed by Frank J. Ferazzi, vice president and general manager of Houston-based Transcontinental Gas Pipe Line Co. (Transco), a Williams subsidiary.

The company needs to start tree clearing along the Pennsylvania route as soon as possible, in order to comply with federal and state requirements concerning endangered bats and installation in water bodies, he said.

A FERC delay beyond Feb. 16 “could jeopardize Transco’s ability to place these facilities into service on a  timely basis,” Ferazzi said.

FERC issued the environmental impact statement for the nearly $3 billion pipeline on Dec. 30, with a final certification likely this spring. Oklahoma-based Williams Partners has said full service on the pipeline is unlikely until mid-2018, although it hopes to start partial service in late 2017.

The pipeline would move Marcellus Shale Play natural gas from northern Pennsylvania to an existing pipeline in Lancaster County, Pennsylvania. It would move about 1.7 billion cubic feet per day (Bcf/d) of natural gas to markets in the Mid-Atlantic states and the southeast U.S., enough to serve 7 million homes.

Energy Transfer Partner’s Rover Pipeline across northern Ohio has made a similar request of FERC for a timely decision to be allowed to begin tree cutting. That request is pending.

PA Governor Wolfe to Push for a Severance Tax for the Third Time.  After failing to pass a natural gas severance tax for the last two years, Governor Tom Wolf is hoping this year, the legislature will get on board with his proposal.

Following an event at the Academy of Natural Sciences in Philadelphia Tuesday evening, Wolf said he plans to ask for a tax on Marcellus Shale drillers during his 2017/2018 fiscal year budget address next month. However, he was mum on the details, which he said are still being worked out with legislators and the natural gas industry.

Wolf, who campaigned on imposing a five percent severance tax, thinks the measure is key to making sure communities hours away from the nearest gas well buy in to Marcellus Shale development, especially as pipeline companies look to move natural gas to markets on the East Coast through their backyards. Increasingly, suburban Philadelphia communities in Delaware and Chester Counties, which lie along the eastern edge of route of the proposed Mariner East pipeline, have been organizing to resist the project.

“I want to be able to say to the people in Delaware County, if you support reasonable and environmentally correct expansion of the gas industry, this is going to help your schools,” the governor said.

Last year, Wolf failed to pass a 6.5 percent severance tax at a time when natural gas production and prices were tanking.

The governor would not say how high a tax rate he’s proposing this year, but hinted at a new plan that would be sensitive to the natural gas market where prices remain low.

“It could be something that has some triggers in depending on the price of natural gas,” he said. “It’s not a matter of whether it’s going to be more or less” than previous proposals.

However, it is unclear whether that would sway Republican lawmakers hesitant to raise taxes or gas industry lobbyists, who have beaten back all previous attempts at a severance tax in the state.

In the meantime, Pennsylvania remains the only major energy-producing state not to levy a tax on extraction. Instead, drillers pay an impact fee for every well drilled. So far, these fees have brought in about $200 million a year, with most of the money going back to the counties and municipalities with the most wells.

API Reports 8.8% Decline.  The total number of U.S. wells drilled and completed in 2016’s fourth quarter fell by 8.8% from third-quarter results, according to a new report from the American Petroleum Institute.

But that decrease is a drastic improvement over the same period in 2015, which saw a 21% decline in total wells drilled and completed, Kallanish Energy reports.

The new report “shows evidence that the consistent decline in oil and natural gas drilling could be coming to an end,” said Hazem Arafa, director of API’s statistics department, in a statement.

“Even with the decline, our nation has established itself as the world leader in the production and refining of oil and natural gas, and in the reduction of carbon emissions, which are near 20-year lows,” he said.

Congress Goes after Obama’s Methane and Coal Regs.  House Republican leaders last week said their top regulatory targets will be President Obama’s rules to reduce methane emissions from drilling and to lessen the environmental impacts of coal mining on streams, Kallanish Energy reports.

Majority Leader Kevin McCarthy (Republican-California) said he expects quick action by Congress on the two environmental rules he says limit energy production. He said Congress will seek to invalidate the rules, starting in late January.

Republican leaders are planning to utilize the rarely used Congressional Review Act that requires a simple majority of both chambers to approve a resolution of disapproval and the President’s signature to make a regulation invalid.

The two measures may get expedited consideration in the Senate on Jan. 30. Various resolutions will be introduced that day, and the House will begin considering some that week, McCarthy’s office told the Associated Press.

Lawmakers have successfully used the act only one other time to quash a new regulation. Generally, they cannot get the votes to overcome a presidential veto.

But under President Trump, Republicans may be able to back his campaign promises to repeal various Obama regulations.

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

Rig Count 

  • Baker Hughes Rig Count the week of January 13, 2017
  • PA   
    • Marcellus 32 down 1
  • Ohio 
    • Utica 19 down 1
  • WV 
    • Marcellus 8 unchanged
  • TX
    • Eagle Ford 47 unchanged
  • TX & NM
    • Permian Basin – 268 up 1
  • ND
    • Williston – 32 down 1
  • CO
    • Niobrara – 23 down 2
  • TOTAL U.S. Land Rig Count 640 up 26  

PA Permits December 15, 2016 to January 5, 2017

      County            Township                E&P Companies

1.    Greene                Gray                    Vantage
2.    Greene                Gray                    Vantage

OH Permits for weeks ending January 7, 2017

       County            Township                E&P Companies

1.    Noble                 Stock                    Eclipse Resources

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Northeast Supply Enhancement