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NewsLetters

Expo/Industry events for the next few months

Utica Midstream
June 7, 2017
Walsh University
North Canton, OH
http://www.uticasummit.com/  

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

DUG East
June 20-22
David L. Lawrence Convention Center
Pittsburgh, PA
http://www.dugeast.com/  

For other events visit http://www.shaledirectories.com/site/oil-and-gas-expo-information.html

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

Good News for EQT.  West Virginia has refused to schedule a hearing on an appeal of a state water-permit approval for the $3.5 billion Mountain Valley Pipeline, Kallanish Energy reports.

In a two-paragraph letter dated May 10, Department of Environmental Protection secretary Austin Caperton signed the letter against such a hearing. No reason was given.

The letter was sent to Appalachian Mountain Advocates, the environmental law firm that had challenged DEP’s authorization of a federal Clean Water act certification for the pipeline. It was also sent to three residents who had filed their own appeals.

Under DEP’s rules, Caperton has the authority to determine whether such a hearing should be held.

The state approval meant the pipeline qualified for a Section 401 permit because its construction would not violate the state’s water quality standards or designated stream uses.

Critics said the state lacked sufficient information to make such a conclusion.

Attorney Derek Teaney of Appalachian Mountain Advocates told the Charleston Gazette-Mail newspaper Caperton’s decision will be appealed to the 4th Circuit Court of Appeals. He called the action “really disappointing.”

The 301-mile pipeline would run from West Virginia to southern Virginia.

The pipeline application is pending before the Federal Energy Regulatory Commission. A draft environmental impact statement has been released.

The pipeline would carry natural gas from the Marcellus and Utica Shale plays from Wetzel County, W. Va., to Pittsylvania County, Va.

The Mountain Valley Pipeline is being developed by Mountain Valley Pipeline LLC, a joint venture of six companies. It will be operated by EQT Midstream.

Saudi’s and Russians Agree on Cuts.  The Saudi Arabian and Russian energy ministers said in a joint statement late Sunday night East Coast Daylight Savings Time an OPEC-led crude production cut would be extended until March 2018.

Saudi Energy Minister Khalid al-Falih and his Russian counterpart, Alexander Novak, met Monday in China's capital of Beijing and jointly said a joint deal to cut crude supplies in order to prop up the market would be extended from the middle of this year until next March.

The Organization of the Petroleum Exporting Countries (OPEC), of which Saudi Arabia is the de-facto leader, and other producers led by Russia, pledged late last year to cut output by almost 1.8 million barrels per day (MMBPD) during the first half of 2017.

Where Are the Workers?  Independent U.S. producers underspent their first-quarter budgets by as much as $2.5 billion collectively, largely because they couldn’t find enough fracking crews to handle planned work, according to research/consulting firm Infill Thinking.

If the scarcity continues, output increases planned for this summer may get pushed into 2018, creating an unanticipated production bulge with “scary” implications for oil prices, Joseph Triepke, Infill’s founder, told Bloomberg. 

In some cases, crews are walking away from jobs they signed up for months ago – even when forced to pay early-termination penalties — to take higher-paying assignments with other explorers.

Workers earn anywhere from $29,000 to $72,000 a year before overtime, depending on the company and the region, Kallanish Energy learns.

The tight fracking market “means U.S. oil production growth this year will be back-half weighted, and we may not understand the full extent of U.S. production growth until early 2018,” Triepke told Bloomberg. “This point is particularly scary if you are rooting for higher oil prices.”

Oilfield service companies contributed the largest number of more than 441,000 jobs slashed globally as prices plunged from more than $100 a barrel in mid-2014, according to Houston-based industry consultant Graves & Co.

Now, with the price of oil settling at around $50 a barrel, shale drillers are once again gearing up. The result: rising competition for workers and equipment, which means higher costs. Fracking companies are now charging 60% to 70% more than a year ago as explorers engage in bidding wars to lock up crews, according to Infill data.

In response, servicers are scrambling to re-hire former employees and retrieve gear from storage, said Andrew Cosgrove, an analyst at Bloomberg Intelligence.

We at Shale Directories have been identifying this labor shortage problem for over a year.  Unfortunately, we do not see any solutions on the horizon except for possibly higher wages.  

We have offer free job listings in Shale Directories.  No one has taken us on this offer.  Someone should that pages gets some decent traffic on our site.

Dow to Spend $4 Billion.  Dow Chemical last week said it's planning to spend $4 billion to expand its operations on the Texas Gulf Coast and in Michigan and Europe, fueled largely by natural gas from shale.

Projects include creating the largest ethylene facility in the world, in Freeport, Texas, Kallanish Energy reports. The work will add two heating furnaces to the TX-9 ethylene cracker’s existing eight furnaces. That will increase its total ethylene capacity to 2 million metric tons.

The cracker was completed in March, but has not yet begun commercial operation.

The news came from what the company described as its next phase of investments. The latest “announcement underscores Dow’s commitment to driving the next-phase of our growth through a comprehensive set of investments that will benefit our shareholders, customers, employees and the communities in which we operate,” said chairman and CEO Andrew Liveris, in a statement.


Strong Natural Gas Prices and Tight Supply in 2017. (Thank you, Art Berman)  A year ago, most analysts were bearish about natural gas prices.   I wrote that natural gas prices might double and they did. Today, most analysts are again bearish about gas prices and again, I think that they are probably wrong at least for 2017.

The mainstream narrative is that new pipeline capacity—notably the Rover Pipeline—out of the Marcellus and Utica shale plays will unleash a torrent of pent-up supply. That is because over-production in these plays has saturated the northeastern U.S. markets and 2016 wellhead prices averaged about $0.88/mmBtu less than Henry Hub prices (Figure 1). New take-away capacity to higher-priced markets will fix that problem but gas prices will plummet later in 2017 because of increased output.‚Äč

Figure 1. Marcellus Wellhead Prices were $0.88 per mmBtu Less Than Henry Hub Prices in 2016. Source: MarcellusGas.Org, EIA and Labyrinth Consulting Services, Inc.

Systematic overproduction turned the northeastern U.S. from the highest-margin market to the lowest by 2013. With a second chance to at least be on par with national pricing, shale gas companies will, according to the narrative, over-produce the entire U.S. market to a loss once again. Smart.
Conventional Gas, Shale Gas and Net Imports

There are three components to gas supply: conventional gas production, shale gas production, and imports. These must be understood to establish a context for a potential supply increase from the Marcellus and Utica shale plays.

There is no doubt that low prices resulted in a 4.26 bcf/d (billion cubic feet of gas per day) decline in gas production from September 2015 through October 2016 (Figure 2).

Figure 2. U.S. Gas Production Fell 4.26 bcf/d From September 2015 to October 2016. Source EIA Natural Gas Monthly and Weekly Updates, and Labyrinth Consulting Services, Inc.

Since 2008, conventional gas production has been in terminal decline and has fallen 26 bcf/d. It is currently falling about 3 bcf/d each year. Shale gas–including associated gas from tight oil—now makes up more than two-thirds of domestic supply. That means that shale gas output must grow by more than 3 bcf/d each year to offset falling conventional supply.

But annual shale gas production growth slowed from almost 7 bcf/d in the first quarter of 2015 to less than 2 bcf/d in the first quarter of 2017 (Figure 3).

Figure 3. Shale Gas Growth Has Slowed from Almost 7 bcf/d in the First Quarter of 2015 to Less Than 2 bcf/d in the First Quarter of 2017. Source: EIA Natural Gas Weekly Update and Labyrinth Consulting Services, Inc.

If shale gas production growth doubles in 2017, then supply will be flat but considerably lower than 2015 levels when over-supply crushed gas prices. Gas supply must increase well beyond what is likely this year in order for prices to fall much below current levels of about $3.25 per mmBtu.

Considerable supply potential exists. The shale gas horizontal rig count has more than doubled—from 76 to 167 rigs—since June 2016 with higher gas prices (Figure 4). How quickly can that potential be converted into supply?

Figure 4. Shale Gas Rig Count Has More Than Doubled Since June 2016 With Higher Gas Prices. Source: EIA and Labyrinth Consulting Services, Inc.

EIA's latest production forecast suggests that it may happen very quickly. The May STEO projects gas growth of 5.6 bcf/d in 2017 which includes an additional 3.5 bcf/d between April and the end of the year (Figure 5).

Figure 5. EIA Forecast is for a 5.6 Bcf/d Gas Production Increase in 2017 with Prices Rising to $3.43 By December. Source: EIA May 2017 STEO and Labyrinth Consulting Services, Inc.

Although that may be unreasonably aggressive, it is noteworthy that the overall supply balance (red and blue fill in the figure) remains in deficit for most of the year, and that spot prices continue to increase, ending the year at almost $3.50/mmBtu. Net imports (the third component of total supply in addition to shale gas and conventional gas) are forecast to average -0.3 bcf/d in 2017 compared to +1.7 bcf/d in 2016.

Rover Pipeline

The Rover Pipeline was certificated for construction in mid-February and will connect gas from the Utica and Southwestern Marcellus shale plays to the Defiance Hub in northwestern Ohio (Figure 6). There is a gas surplus (~1.8 bcf/d) in Ohio so this pipeline is a gas exit route to the Dawn Hub in Ontario, and to the Midwest and Gulf Coast via interconnecting Vector, Panhandle Eastern and ANR pipelines. There, it will compete with existing supply and result in lower prices.

Figure 6. Rover Pipeline Route Connecting Utica and Southwestern Marcellus Shale Plays With the Defiance Hub. Source: Energy Transfer and Labyrinth Consulting Services, Inc.

Although Rover is scheduled to reach Defiance in November, it is unlikely that any gas will move beyond there before 2018. It will not, therefore, have any effect on gas supply in 2017. Depending on how much gas ultimately is sent to Canada, it may have limited effect on U.S. supply in 2018.

A Permian Must Read.  The Best Latest Information.  (Thank you, BTU Analytics) First quarter earnings are in and the general sentiment to start off 2017 is that production growth is back. Specifically, players in the Permian are highlighting growth targets for the year, including Concho Resources (NYSE: CXO) at 21-25% growth, Pioneer (NYSE: PXD) at over 15% growth and EOG Resources (NYSE: EOG) at 18% growth this year.

A look at drilling activity over the last year highlights the very steep ramp up in Permian activity. Monthly wells drilled increased year over year by 233% growing from 150 to 350 wells. While the steep pace of growth is unsustainable, continued gains in drilling efficiency and additional rigs will likely push total drilling levels slightly higher still.

However, with all the discussion of current and planned drilling activity, we are only beginning to see growth in both the EIA 914 natural gas production data and pipeline flow data. There are a few reasons for this. One reason is the effect of pad drilling in the Permian. BTU’s May edition of the US Upstream Outlook Report covers in detail how pad drilling in the Permian is expected to impact production timing. (For more details on this analysis request a free sample of BTU Analytics’ US Upstream Outlook.)  The second reason is the lack of transparency caused by intrastate pipelines in Texas. Intrastate pipelines do not have the more stringent reporting requirements of interstate pipelines, resulting in limited visibility to see the complete picture of Permian gas flows.

One idea we have heard being tossed around about why recent data doesn’t show all of the production growth is flaring. With such aggressive growth in the Permian rig count, it’s likely that midstream may lag behind, leaving some gas temporarily stranded and needing to be flared. Texas Railroad Commission data shows a large spike in flaring activity in the second half of 2016, with nearly all of the increase attributed to a handful of Apache wells in the Alpine High play. While midstream services are currently being built out, planned in-service isn’t expected to be complete until the end of 2018.

Regardless of who is responsible for the flaring, however, total flaring volumes in the state of Texas are still generally low at only around ~70 MMcf/d with Apache’s recent flaring, and 20 MMcf/d without, meaning this doesn’t account for volumes many are expecting to see.

So, where else can we look for signs of production growth? In pricing. The chart below shows the Waha basis spread to Henry Hub. Over the past six months the front end of the curve has blown out, going from an average of $0.10-$0.15/MMbtu below Henry in November 2016 to $0.30-$0.40/MMbtu back for May 2017.

This highlights that the market is starting to see signs that Permian production is growing quickly. See a previous market commentary piece for more information on implications to the Permian.

Permian producers are indicating that additional production growth will be back-weighted to the end of the year. But the growth is coming, and those that aren’t prepared for it will feel the pain beginning later this year. For an in-depth look at BTU’s Permian outlook, including detailed analysis found nowhere else, request information on BTU’s new Permian Package offering.

Williams Delivers Petition to Gov. Wolf for Atlantic Sunrise.  Williams Partners continues mustering support for its Atlantic Sunrise natural gas pipeline, Kallanish Energy learns.

A recent petition signed by more than 3,000 supporters was delivered to Pennsylvania Gov. Tom Wolf requesting prompt state regulatory approval of the $3 billion project, according to a company news release.

In addition, more than 1,200 people and organizations submitted supportive comments to the Federal Energy Regulatory Commission during the public-comment period.

The project was approved in February by FERC and is awaiting final state permits. Construction is slated to start by Oct. 1, with the pipeline being in full service by mid-2018. It would transport Marcellus Shale natural gas to Maryland, Virginia and the Carolinas.

“Williams’ Atlantic Sunrise project addresses this critical need, allowing us to capitalize on this once-in-a-generation opportunity,” said Pennsylvania Chamber of Business & Industry president Gene Barr, in the company release.

“While the components are there for sustainable economic growth and prosperity, the lack of energy infrastructure to move this clean-burning, low-cost commodity to markets hinders immediate job growth and economic opportunity in our state. The time to build this project is now,” he said.

“Pennsylvania is poised, perhaps unlike at any other time in recent memory, to benefit in every way — new jobs, better wages, reduced energy costs, increased tax revenue and economic prosperity for generations to come,” said Pennsylvania Chemical Industry Council president Jeff Logan, in the company statement.

“After nearly three years of intense regulatory scrutiny, it is time for our own state government to complete its review of this important infrastructure project so that Pennsylvanians can immediately benefit from the economic growth and jobs it promises to deliver. This includes the chemical industry, which supports more than 90,000 direct and related jobs in the Commonwealth,” he added.

Kalnin Makes 4th Marcellus Acquisition.  Kalnin Ventures LLC today announced it has signed a Purchase and Sale Agreement (PSA) on its fourth acquisition of a non-operating portfolio in the northeast portion of the Marcellus Shale, on behalf of its BKV Fund and investor Banpu Pcl. 

Banpu Pcl is a Thailand-based coal mining and power-generation company with total assets of approximately $6.6 billion.

Valued at $16.25 million, the agreement was executed with Zena Energy LLC, a subsidiary of LSB Industries, Inc., as the seller and is comprised of interests in 34 wells. The asset will generate cash immediately and fits within Kalnin's strategy of acquiring profitable assets.

Other terms of the deal include net production to interest of approximately six million cubic feet per day, 33 BCF of 1P reserves and access to nearly 1,000 net contiguous acres in the productive Marcellus Shale area of Wyoming County.

With the addition of this fourth acquisition, Kalnin Ventures will hold an interest in 241 active wells with 6 additional wells waiting on completion. The transactions provide Kalnin Ventures with net production to interest of more than 50 million cubic feet per day.

In less than two years, Kalnin Ventures has executed four transactions and deployed more than $200 million of equity toward its strategy of building a scalable model of acquiring, managing, and monetizing non-operated portfolios.

Kalnin is demonstrating that funds acquiring strategic assets and operating efficiently in an environment with pricing volatility can remain profitable as evidenced by its strong cash flow yields and fund’s bottom-line profit.

Canadian Company Looking to Buy in the Marcellus.  A Calgary-based energy company behind a proposed liquefied natural gas export facility in Nova Scotia wants to buy producing natural gas assets in the Marcellus Shale in Pennsylvania or in western Canada.

That is the plan being pursued by Pieridae Energy, according to Reuters. It reported CEO Alfred Sorensen said his company wants to acquire 200 million cubic feet per day to supply its proposed LNG export facility at Goldsboro.

“What we really want is a resource with potential to grow into rather than producing right now,” Sorensen told Reuters.

He said the company would look into possible acquisitions later this year.

On Monday, the company agreed to buy Quebec-based energy producer Petrolia through a reverse takeover that will create a new publicly-traded company, as it seeks to expand operations and grow resources, Kallanish Energy reports.

Pieridae is expected to make a final investment decision later this year on the $7.3 billion Goldsboro LNG facility. German utility Uniper has committed to purchasing 50% of the LNG from Goldsboro. The plant is expected to produce up to 10 million metric tons a year.

Pieridae wants to begin construction late this year or early next year in order to begin service in late 2021.

Pipeline Expansion in the Permian.  Medallion Pipeline on Tuesday initiated a binding open season for a two-part expansion of its existing crude oil pipeline system in the Midland Basin, Kallanish Energy learns.

The project includes the Wolfcamp Expansion, which will nearly double the capacity of Medallion’s existing Wolfcamp Connector mainline; and the Howard Expansion, which will increase the capacity of the existing Howard Lateral.

The Wolfcamp Expansion consists of a 16-inch partial loop of the Wolfcamp Connector mainline in the Texas counties of Howard, Glasscock, Mitchell and Scurry. The expansion will commence at the existing Howard-Wolfcamp Interconnect and extend 47 miles to the Colorado City Hub, where Medallion interconnects with several third-party carriers.

The expansion will nearly double the existing capacity on the Wolfcamp Connector mainline, from 105,000 barrels per day (BPD), to 200,000 BPD.

Irvin, Texas-based Medallion also will expand the capacity of the existing bidirectional Howard Lateral in Glasscock and Howard counties to 85,000 BPD, from the existing 60,000 BPD capacity.

The overall expansion project is expected to commence partial operation in the third quarter, and full operation by the end of 2017.

The open season ends on June 9.

Medallion Pipeline on Tuesday initiated a binding open season for a two-part expansion of its existing crude oil pipeline system in the Midland Basin, Kallanish Energy learns.

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Rig Count 

  • Baker Hughes Rig Count the week of May 19, 2017
     
  • PA     
    • Marcellus 35 up 2
  • Ohio 
    • Utica 24 up 1
  • WV 
    • Marcellus 11 unchanged
  • TX
    • Eagle Ford 85 up 2
  • TX & NM
    • Permian Basin – 361 up 4
  • ND
    • Williston – 44 unchanged
  • CO
    • Niobrara – 23 down 2
       
  • TOTAL U.S. Land Rig Count 874 up 14

PA Permits May 11, to May 18, 2017

      County               Township            E&P Companies

1.    Greene                Center                Rice
2.    Greene                Center                Rice
3.    Greene                Center                Rice
4.    Greene                Center                Rice
5.    Greene                Center                Rice
6.    Greene                Center                Rice
7.    Greene                Center                Rice
8.    Indiana                North Mahoning   Consol
9.    Tioga                   Deerfield             Shell
10.  Tioga                   Deerfield             Shell
11.  Tioga                   Duncan               EQT
12.  Westmoreland      Hempfield            Apex
13.  Westmoreland      Hempfield            Apex

OH Permits for week May 6, 2017

       County                Township               E&P Companies

1.    Belmont                Mead                    Gulfport
2.    Belmont                Wheeling                Ascent
3.    Belmont                Wheeling                Ascent
4.    Belmont                Wheeling                Ascent
5.    Belmont                Wheeling                Ascent

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

Utica Summit