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Expo/Industry events for the next few months

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

Utica Upstream 
April 5, 2017
Walsh University
Canton, OH  

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 

Shell Update on Cracker Plant.  Shell’s long-planned, $6 billion ethane cracker in Pennsylvania could see significant progress by late 2017 or early 2018, Kallanish Energy learned from CEO Ben van Beurden during an analysts’ presentation Thursday.

The executive said the project, initially proposed in 2012, was planned to have a slow start because of its high cost.

The oil supermajor has been working on permits and preparing the site on the Ohio River at Monaca, Beaver County.

“There has been quite a lot of work done. We can now start building, civil works,” said van Beurden, adding plant start-up is still expected in the next decade.

Chemicals are a “growth priority” for Shell, which sees in the Beaver County plant a strategy to re-enter the polyolefins market. The petchem complex to be built roughly 30 miles northwest of Pittsburgh will also include polyethylene derivatives units.

The company plans to allocate roughly $3 billion for capital investments in chemicals this year, and between $3 billion and $4 billion in 2018, the CEO said.

When the final investment decision for the cracker was confirmed in June 2016, Shell said the main construction would start in 18 months.

Last month, it received a municipality permit, but the firm still needs state environmental regulators to modify wastewater discharge and air emissions permits held by zinc smelter Horsehead, the property’s former owner. The company also must secure federal permits before construction begins.

The cracker Shell will consume roughly 100,000 barrels per day (BPD) of ethane, which will come from 10 producers that have signed contracts ranging in length from 10 to 20 years.

Anchor suppliers include Antero Resources, Consol Energy, PennEnergy Resources, Noble Energy, Hilcorp, Eclipse Resources, and Ascent Resources, with product coming from both the Marcellus and Utica Shale plays.
(To better understand process and opportunities of the ‘storage needed attend the Appalachian Storage Hub conference noted about)

A major reason for Shell’s investment is said to be a tax incentive package worth as much as $1.6 billion over 25 years.

Local steelmakers, however, are disappointed as Shell will be permitted to use Chinese steel in the project.

Phil Rahrig, with the American Galvanizers Association, told local Pittsburgh media steel companies in Western Pennsylvania will be lucky to get scraps from the cracker plant.

“It’s almost a certainty the steel will be sourced in China, so it will be manufactured there. It will be fabricated there and galvanized in China,” Rahrig said.

Shell and Anadarko Discussing Deal in the Permian.  Royal Dutch Shell’s chief financial officer Simon Henry said Thursday the company is renegotiating its five-year joint venture with Houston-based Anadarko Petroleum in the Permian Basin in West Texas/New Mexico, Kallanish Energy learns during a webcast with analysts.

The 50-50 joint venture in the Permian’s Delaware Basin ends in mid-2017. “We have been doing quite a bit of work … but not yet agreed,” Henry told analysts. He added operating the asset is likely to be “consolidated in a different way.”

The executive, speaking at his last earnings presentation at Shell, said the company is working for a “win-win negotiation,” and he’s “pretty confident” both parties will get a fair share.

Henry also talked about other assets it owns, either previously or after the BG Group acquisition. He disclosed assets in the Haynesville Shale in Louisiana “won’t necessarily stay in our portfolio.”

The supermajor estimated production growth of 140,000 barrels oil-equivalent per day (BOE/d) from its assets in the Permian and the Fox Creek Basin in Canada near-term. Other longer-term shale gas exploration plans include Argentina’s Vaca Muerta Basin.

CEO Ben van Beurden said Shell’s shale assets in the Americas will be a source of “growth to come,” with material discovered and prospective resources estimated at 11 billion barrels of oil-equivalent (BBOE), of which 25% is liquids and 75% is natural gas.

Shell plans a capital investment of $2-3 billion per year to accelerate liquids development, as it continues to improve capital efficiency and reduce operating costs, officials said.

The firm holds advantaged positions in the Permian and Fox Creek basins with an average break-even price under $40 per barrel.

Consol 4th Qtr. Update.  During the fourth quarter of 2016, CONSOL's E&P Division produced 101.3 Bcfe, or an increase of 6% from the 95.5 Bcfe produced in the year-earlier quarter. During the quarter, total production costs decreased to $2.27 per Mcfe, compared to the year-earlier quarter of $2.37 per Mcfe, driven primarily by reductions to transportation, gathering and compression and lease operating expense as a result of the overall increase in production.

E&P Division capital expenditures decreased in the fourth quarter to $30.1 million, compared to $48.7 million spent in the third quarter of 2016, primarily due to less completion activity.

Marcellus Shale production volumes, including liquids, in the 2016 fourth quarter were 56.5 Bcfe, approximately 14% higher than the 49.7 Bcfe produced in the 2015 fourth quarter. Marcellus Shale total production costs were $2.20 per Mcfe in the just-ended quarter, which is a $0.18 per Mcfe improvement from the fourth quarter of 2015 of $2.38 per Mcfe, driven primarily by a reduction to transportation, gathering and compression and lease operating expense.

CONSOL Energy's Utica Shale production volumes, including liquids, in the 2016 fourth quarter were 22.2 Bcfe, up approximately 7% from 20.7 Bcfe in the year-earlier quarter. Utica Shale total production costs were $1.86 per Mcfe in the just-ended quarter, which is a $0.02 per Mcfe improvement from the fourth quarter of 2015 total production costs of $1.88 per Mcfe. The cost improvement across the Utica Shale was driven, in part, by reductions to lease operating expenses, partially offset by an increase to transportation, gathering and compression expenses in the wet gas areas.

E&P Division Fourth Quarter Operations Summary:

During the quarter, CONSOL Energy operated two horizontal rigs, drilling seven dry Utica Shale wells in Monroe County, Ohio, with an average lateral length of 9,593 feet, while averaging 24 drilling days per well or two days shorter than previous projections. Two Monroe County Utica pads are now fully drilled and prepared for completion operations in the first quarter of 2017. Also in the fourth quarter, CONSOL completed three laterals, including one Marcellus, Burkett, and Rhinestreet well each, on the eight-well ACAA1 pad in Allegheny County, Pennsylvania. The company expects to complete the remaining five Marcellus Shale laterals on the ACAA1 pad in the first quarter of 2017. In Greene County, Pennsylvania, seven Marcellus Shale wells and one Burkett Shale well were turned-in-line in the fourth quarter.  Utilizing managed pressure, five of the Marcellus laterals on the GH-58 pad, which had an average lateral length of 7,400 feet, each averaged 12.5 MMcf per day for their first 60 days.

Reserves Up at Range.  Range Resources (ticker: RRC) put out a press release Friday announcing that the company’s proved reserves as of December 31, 2016 were 12.1 Tcfe, up 22% from year-end 2015. The company’s reserve highlights are:

  • Proved reserves increased 11%, excluding acquisitions and divestitures
  • Proved developed reserves increased 14%, excluding acquisitions and divestitures
  • Drill-bit development cost with revisions is expected to be $0.34 per Mcfe
  • Future development costs for proved undeveloped reserves are estimated to be $0.42 per Mcfe; Marcellus costs are estimated to be $0.37 per Mcfe
  • Unhedged recycle ratio improves to over 3x based on future development costs of $0.42 per Mcfe

Commenting on Range’s 2016 proved reserves, Jeff Ventura, Range’s CEO, said, “Range had another solid year of reserve growth, replacing 292% of production from drilling activities with drill-bit development costs of $0.34 per Mcfe when considering pricing and performance revisions.

“Positive performance revisions continued in 2016 as we extended laterals improved targeting and drove efficiencies throughout our developed leasehold and infrastructure.  The strong reserve additions from drilling activity were driven primarily by our development in the Marcellus, as our acquisition of North Louisiana assets closed in late 2016.

Enerplus Boosting Production in the Bakken.  Enerplus announced it expects to boost liquids production in 2017, primarily in the Bakken Shale in North Dakota and Montana.

It is projecting a 50% increase in total Bakken production in 2017, Kallanish Energy learns.

The company has earmarked $330 million in its 2017 capital budget that totals $450 million, to fund a two-rig drilling program and to begin production of 30 net wells in North Dakota.

Liquids production is expected to grow by 25% in 2017, the company said. The 2017 budget is expected “to drive robust liquids growth while maintaining our strong financial position,” said CEO Ian Dundas, in a statement.

Fourth-quarter 2017 liquids production guidance is 45,000 to 50,000 barrels per day (BPD), with total fourth-quarter 2017 production guidance of 92,000 to 97,000 barrels of oil-equivalent per day (BOE/d).

In fourth quarter 2016, liquids production averaged 41,500 BPD and total production for the quarter averaged roughly 89,000 BOE/d. Those totals were reduced by severe weather in North Dakota, the company said.

The company is projecting annual liquids production growth of 20% through 2019 – with overall production growth of 10% per year through 2019.

It will also spend $60 million in 2017 in the Canadian water floods (wells in which high-pressure water is injected to increase crude recovery) and $60 million in the Marcellus Shale in Pennsylvania, where six net wells will begin production.

New Player in the Appalachian Basin.  S.T.L. Resources, LLC (“S.T.L.”), a newly formed independent oil and gas company, announced today that it has recently closed on the acquisition of 8,000 acres in the core of the Marcellus Fairway in North Central Pennsylvania. Terms of the transaction were not disclosed. Funding was provided by the founders and a seasoned family office investor.

S.T.L. controls 100% of the working interest and will be the operator of record on all new wells drilled. The asset contains significant in-place infrastructure, current Marcellus production and is prospective for the Marcellus and Utica Shale as well as the Upper Devonian.  The strategic location of S.T.L.’s assets also allow for future expansion, which could increase the total project acreage holdings by a factor of four times its current size.

William Dressel, Founder and Managing Partner of S.T.L., commented, “This is an exciting time to be a newly formed independent oil and gas company in the Appalachian Basin. When you combine the operational improvements achieved by E&P operators today with the well documented recoverable reserves available in the region and the expected takeaway capacity coming on-line, the assets we acquired will help serve as a launching pad to enable S.T.L. to become a significant operator in the region and help provide our partners with access to attractive risk-adjusted returns.”

Mr. Dressel’s experience as an entrepreneur in the Appalachian Basin includes negotiating land contracts for over 350,000 acres and working with some of the most prominent operators in the region. Mr. Dressel will be joined by William Hayward (Chairman & Senior Geological Advisor of S.T.L.) and Clinton Coldren (CEO of S.T.L.) along with other seasoned Appalachian Basin executives.

Mr. Hayward is a 30+ year Appalachian Basin veteran and one of the architects of the management team at S.T.L. Having professional relationships with each individual currently on the team has allowed Mr. Hayward to complete an experienced and diverse team to rival any in the area. Most recently, Mr. Hayward was the Founder of Hayward Natural Resources where he established multiple partnerships across Pennsylvania, Ohio, West Virginia and Texas that have resulted in more than 2,000 conventional and unconventional wells drilled within the established and proven AMI prospect areas.

Mr. Hayward stated, “For more than 30 years, members of the new S.T.L. team and I have worked in and around many of these fields in the Appalachian Basin.  The acquisition of these assets are consistent with our strategic vision to identify positions that: (i) generate favorable returns in today’s commodity price environment; (ii) have access to multiple hydrocarbon bearing zones; (iii) contain substantial in-place infrastructure; and (iv) have the ability to leverage the local skill set of our seasoned Appalachian Basin management team.  While we will work to optimize the profitability of this acquisition and enhance shareholder value, we will also continue to seek complementary properties in the Appalachian Basin with similar attributes.”

Mr. Coldren brings 39 years of oil and gas management, financial and operational experience to S.T.L.  S.T.L. will be the fourth independent oil and gas company that Mr. Coldren has helped launch where he was either CEO or COO.  Coldren was responsible for creating in excess of $2B of value through acquisitions and organic development during his tenure as CEO or COO.  Prior to his successful stints as an entrepreneur, Mr. Coldren held various operational, drilling and petroleum engineering positions with majors and large independents.

Mr. Coldren said, “We believe that the economic returns of the Appalachian Basin, when combined with the team’s local knowledge and ability to operate efficiently, will provide our partners with favorable risk-adjusted returns. Because of the past market downturn, many operators in the basin are over-extended and have been pursuing strategies to divest non-core assets or identify new partners, creating opportunities for agile E&P companies like S.T.L.  I look forward to continuing to work with the S.T.L. team and its partners to take advantage of this opportune time in the cycle.”

Kinder Morgan Moving Forward on Utopian Pipeline. The start of construction of the 215-mile Utopia Pipeline through Tuscarawas, Harrison and Carroll counties will bring more than 300 temporary jobs to the New Philadelphia area.

Kinder Morgan, the company spearheading the project, and its contractor, Minnesota Ltd., will begin Wednesday with the process of removing trees from the pipeline right-of-way.

While work is being done, Minnesota Ltd. will operate a contractor yard in New Philadelphia on 16th Street SW, between the Eagle Truck Stop and the Tuscarawas County Job & Family Services building. It will be located behind Cardinal Fleet Service.

"This is going to be a big project for Ohio," said Allen Fore, vice president of public affairs for Kinder Morgan. "New Philadelphia has a particular significance to the project because we're also going to be locating one of our contractor yards here. Minnesota Ltd. is our contractor for the project. It's a union contractor. It's going to be utilizing union labor, so a lot of local workforce will be part of this.

"We anticipate, once we get up and running, we'll have over 300 workers working out of that construction yard for several months."

He predicted that those workers who come from outside the area will be patronizing local restaurants and hotels and purchasing items at local stores.

"These folks work very hard, but they're also paid well, and they're going to be living in the area temporarily or already residents here, so it will be a good boom to the economy over the next several months," he said.

Kinder Morgan and Minnesota Ltd. employees gathered Tuesday at the Schoenbrunn Inn and Conference Center for an orientation session, where they were greeted by New Philadelphia Mayor Joel Day.

"I encouraged them to explore New Philadelphia, to come downtown and go to the east side, take in the restaurants and the Performing Arts Center," the mayor said following the meeting. "I asked them to explore New Philadelphia and told them I'm sure you'll be pleased with what you discover."

Day said the contractor yard will mean a boost in revenue for the city through income tax collections and the bed tax. "It gives us more revenue to do things for the city, and it exposes New Philadelphia to more people, which are a good thing. Some of them might move here."

He said he didn't know the exact amount of revenue the project would bring in. "We won't know until they start working and paying. They are well-paid workers, so it'll give us a nice bump."

The Utopia Pipeline will carry ethane gas from the MarkWest processing facility in Cadiz to an existing Kinder Morgan pipeline in northwest Ohio. From there, the ethane will be taken to the Nova Chemicals plant in Windsor, Ontario, where it will be turned into plastics.

Fore expects construction on the pipeline to begin in April or May and it will go into service on Jan. 1, 2018.

The company has already secured 90 percent of the right-of-way from properties owners that are needed for construction and Fore said the company will reach 100 percent in the next couple of months. Kinder Morgan will have a 50-foot right-of-way for the pipeline and a 50-foot temporary right-of-way for construction.

Fore said Kinder Morgan works closely with property owners, sometimes making adjustments to the route to accommodate their wishes. The company also works with counties and townships on road use agreements and on how to repair roads after the work is done.

"This is a partnership that could potentially last generations," he said. "These pipelines are going to be in service for a very long time, so starting off correctly is in the best interest of the company because these landowner relationships, these relationships with elected officials are going to last a long time."

The pipeline will be buried a minimum of 3 feet underground. It will go to depths of 8 to 10 feet under roads and 30 feet when going under waterways, such as the Tuscarawas River.

Fore said maintenance of the pipeline will be a top priority after it is completed.

"Our pipelines are built to last a very long time," he said. "The reason that they do is because, first of all, you get good quality pipe. This is American-made pipe, good quality pipe. You test it. You make sure it's built to last.

"We also then coat the pipe with an epoxy that avoids corrosion, because if something is going to happen to a pipe, it will be corrosion or an external impact. We also use a highly-trained workforce to build it, to put it together, to weld it. And then we monitor it."

The pipeline will be viewed regularly from the air and the ground. In addition, Kinder Morgan has an internal inspection tool, called a pig that is able to go through the line periodically to determine if something is not right.

"So there are lots of protections built into these systems that make sure that these things are built to operate safely and are built to last," Fore said.

FERC “On Hold” With last week’s resignation of Federal Energy Regulatory Commission chairman Norman Bay, the federal agency lacks a three-person quorum to issue orders and approve projects.

That may halt federal action on energy projects until replacements can join the commission.

Bay resigned from the federal agency that oversees interstate pipelines late Thursday, after President Trump made Commissioner Cheryl LA Fleur acting chairman.

Hours after that announcement, Bay said he would resign his post on Feb. 3, 16 months before the end of his term.

His resignation will leave the five-member panel with only two members:  LA Fleur and Commissioner Colette Honorable, whose terms expire June 30. The other seats have been empty.

Three commissioner votes are needed for the agency to take action, Kallanish Energy reports.

Bay issued a six-page letter that largely looks at the accomplishments of FERC over the last 21 months. He served as FERC chairman from April 15, 2015, to Jan. 23, 2017. He was named to the post by former President Obama. He replaced LaFleur.

He was approved by Congress in a narrow vote along party lines in July 2014, although he did not assume the chair for nine months under a deal brokered by the White House. He previously served as FERC’s enforcement chief.

LaFleur has been a commission member since 2010. She served as acting chairman from November 2013 to July 2014, and as chairman from July 2014 to April 2015.

In a brief statement issued by FERC, LaFleur said the agency is “in a state of transition” with vacancies to be filled.

She called her appointment an honor and thanked Trump. It was unclear if she would step up to chairman after new commissioners join the agency.

LaFleur has 20 years’ experience in the energy industry including executive posts with National Grid USA. She began her career as an attorney in Boston.

Some insiders say Bay never overcame the distrust of Republican congressional leaders who unsuccessfully sought to appoint LaFleur as chairman in late 2013. Some criticized Bay for aggressively pushing the commission’s enforcement actions against energy companies.

Continental Resources Increases Production and Spending.  Total production from its U.S.-shale focused portfolio will grow considerably by the end of 2017, as the industry recovery solidifies, Continental Resources said last week.

Continental is a major player in the Bakken shale in North Dakota, and is the No. 2 crude oil producer in the U.S. From its total portfolio, which includes Oklahoma shale in the STACK play, Continental said it expects to produce roughly 220,000 to 230,000 barrels of oil-equivalent per day (BOE/d), compared with approximately 217,000 BOE/d in 2016.

For crude oil specifically, Oklahoma-based Continental expects a 29% increase in production this year, to roughly 150,000 BOE/d, compared with approximately 116,500 BOE/d during the fourth quarter of 2016.

Natural gas production is expected to increase to roughly 630 million cubic feet per day (MMcf/d) at year-end 2017, up approximately 12% over fourth-quarter 2016 production, Kallanish Energy finds.

“We are capitalizing on the exceptional performance delivered by our operating teams the last two years,” Chairman, CEO and founder Harold Hamm said.

Continental said it more than doubled its capital spending plans for the year, to $1.95 billion, allocating $1.72 billion to drilling and completion activities.

The capital budget is projected to be cash neutral for full-year 2017 at an average $55 per barrel for West Texas Intermediate crude, and $3.14 per thousand cubic feet (Mcf) of natural gas priced at Henry Hub.

“Continental intends to adjust the level of spend if necessary to remain cash neutral for the year,” the company stated. “It also continues to target reducing long-term debt to $6 billion or lower using proceeds from the potential sale of non-strategic assets.”

Inflection Energy.  Inflection is going to bring a rig in to Lycoming County, PA (RUMOR)

Antero’s Reserves Are Up.  Antero's estimated proved reserves at December 31, 2016 were 15.4 Tcfe, a 16% increase compared to estimated proved reserves at December 31, 2015. Proved, probable and possible ("3P") reserves at year-end 2016 totaled 46.4 Tcfe, which represents a 25% increase compared to the previous year. Both proved and 3P reserves as of December 31, 2016 account for 115 million barrels and 912 million barrels of ethane, respectively, as natural gas rather than liquids since this ethane is expected to remain in the natural gas stream until such time as pricing supports full ethane recovery.

Anadarko 4th Qtr. Update.  Anadarko Petroleum reported a fourth-quarter 2016 loss of $515 million, as it wrote down the value of oil-producing properties and exploration assets, Kallanish Energy reports.

Anadarko took fourth quarter 2016 impairment charges that increased the net loss by $243 million. The loss was smaller than the $1.3 billion loss for the fourth quarter of 2015, said The Woodlands, Texas-based Company.

Its quarterly revenue grew from $2.1 billion to $2.4 billion. Net quarterly cash provided by operating activities was $1.12 billion.

For the year, the company reported a net loss of $3.07 billion. Full-year net cash provided by operations was $3 billion. Its full-year revenue was nearly $7.9 billion, down from $8.7 billion in 2015.

In 2016, Anadarko sold more than $4 billion in assets and expects to close on an additional $3.5 billion in previously announced asset sales in the Eagle Ford Shale in South Texas and the Marcellus Shale in Pennsylvania in early 2017.

CEO Al Walker said the company is putting more cash into its most lucrative production areas: the Delaware Basin in West Texas and New Mexico, the DJ Basin in Colorado and the Gulf of Mexico.

Anadarko cut capital spending by half in 2016, but it dispatched four additional rigs to the Delaware Basin and three rigs to the DJ Basin.

The company is projecting a compounded annual oil growth rate of 12% to 14% over the next five years, he said.

In 2016, Anadarko reported sales volumes of 290 million barrels of oil-equivalent (MMBOE), or an average of 793,000 barrels of oil-equivalent per day (BOE/d). Sales volume in Q4 averaged 774,000 BOE/d.

PIOGA Winter Annual Meeting.   The PIOGA event while on the heels of MUM offered fresh and updated information that was geared more PA activities and regulations.  There was one common thread – Trump administration.  Dr Terry Madonna spoke openly and freely how the Trump administration won the presidency through the outreach to the rural areas (drilling country!) and the pushback from the more metropolitan areas.

PA DEP gets kudos for his honesty on the issues of what’s slowing down the permitting process; lack of staffing, lack of streamline processing and even mentioned something about an internal union issue.  Better yet, with issues identified some of the workload is being shifted to Meadville and Williamsport.  Again, we applaud DEP for the open dialogue and willingness to answer everyone’s tough questions.

Gov. Wolfe Courting Drillers.  Gov. Wolfe is trying to convince PA E&P companies to help him plug PA budget deficits.  With another budget shortfall, Gov. Wolfe informed the industry that if they quickly agreed to pay 5% severance tax he would assure them that the pipeline permits in PA would be issued for the southeast region.  (RUMOR)

EQT Rigs.  EQT has 11 active rigs in Appalachian Region (RUMOR)

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

Rig Count 

  • Baker Hughes Rig Count the week of February 3, 2017
  • PA     
    • Marcellus 33 unchanged
  • Ohio 
    • Utica 21 unchanged
  • WV 
    • Marcellus 8 unchanged
  • TX
    • Eagle Ford 56 up 2
  • TX & NM
    • Permian Basin – 295 up 4
  • ND
    • Williston – 37 unchanged
  • CO
    • Niobrara – 21 up 1
  • TOTAL U.S. Land Rig Count 705 up 16

PA Permits January 19, to January 26 2017

       County                 Township              E&P Companies

1.    Washington            Somerset               Rice
2.    Westmoreland         Derry                    Campbell

OH Permits for weeks ending January 21, 2017

       County            Township             E&P Companies

1.    Belmont             Wayne                Gulfport
2.    Noble                 Wayne                Antero
3.    Noble                 Wayne                Antero
4.    Noble                 Wayne                Antero
5.    Noble                 Wayne                Antero
6.    Noble                 Wayne                Antero

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Northeast Supply Enhancement