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Expo/Industry events for the next few months

Utica Midstream
April 4, 2018
Walsh University
North Canton, OH

 The New Upstream PA 2018
May 17, 2018
Penn Stater Conference Center
State College, PA

Appalachian Storage Hub Conference
June 7, 2018
Hilton Garden Inn, Southpointe
Canonsburg, PA

For other events visit

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

Appalachian Storage Hub DOE Loan Approved in Senate Committee.  A bill sponsored by Sen. Joe Manchin, D-W.Va., that could lead to major developments for West Virginia’s oil and gas industry was approved by a Senate committee Thursday.

Senate Bill 1337, called the Capitalizing American Storage Potential Act, was approved by the Senate Energy and Natural Resources Committee.

The bill, which Manchin introduced in June, would make sure that a regional storage hub qualifies for the Department of Energy’s successful Title XVII innovative technologies loan guarantee program.

A regional storage hub could help ensure optimization of domestic energy resources while attracting manufacturing investment and creating jobs, Manchin said.

“The Appalachian Storage Hub will allow West Virginia and its neighbors to realize the unique opportunities associated with Appalachia’s abundant natural gas liquids like ethane, naturally occurring geologic storage and expanding energy infrastructure,” Manchin said.

“In fact, a storage hub will attract manufacturing investment, create jobs and significantly reduce the rejection rate of natural gas liquids like ethane, butane and propane by capturing and utilizing these products — thereby reducing emissions,” Manchin said.

“By having access to natural gas liquids locally, our existing manufacturers will benefit and we will be in a position to attract additional companies, create thousands of downstream jobs and boost the state’s economy,” she said  “We are excited to hear of this advancement spearheaded by Senator Manchin.”

The proposed Appalachian Storage and Training Hub most recently cleared a major hurdle in January.

Its developers, Appalachia Development Group, were given permission to proceed with Part II of the application process to secure a $1.9 billion federal loan to support the project.

The application was “the first of several steps in the process to secure a conditional commitment and final loan agreement, said Steve Hedrick, CEO of Appalachia Development Group and president and CEO of Mid-Atlantic Technology, Research & Innovation Center.

“I would consider this to be a milestone and a pathway,” he said. “A select few efforts make it through Part I of the loan guarantee program and get an invitation to Part II.”

Hedrick said the initial cost of the project would be “north of $3 billion” for the first phase.

“(You’re talking) multiple storage locations with significant infrastructure and piping, storing and delivering natural gas liquids from intermediates to manufacturing locations — it’s not a small list,” he said.

John Deskins of the Bureau of Business and Economic Research at the WVU College of Business and Economics said the storage hub would help add value to gas products extracted from West Virginia before they are shipped elsewhere.

“It’s absolutely crucial to see value added,” he said. “That could really turn around a lot of vicious cycles we’ve seen, such as unemployment and loss of population in this state.”

PA NatGas Production Moving from NE to SW. Every now and again it’s good to step back and look at the macro shale trends in a given state. Pennsylvania is the largest shale gas producing state in the country (yes, even bigger than Texas), so it’s good to take stock of what’s happening in PA. The Pittsburgh Business Times has done some excellent analysis of gas production in PA. Their analysis shows that regionally, production of shale gas in PA over the past four years (2014-2017) has gone up in both regions. However, it’s gone up more/faster in southwestern PA than in northeastern PA. Why? More pipeline infrastructure is available or has come online in southwestern PA over that period, while northeastern PA remains pipeline starved.

NatGas 2018 Analysis. (Thank You, Jude Clemente, Forbes.  Clemente will be speaking at Shale Directories “The New Upstream.” You do not want to miss Jude’s presentation at the seminar.  

Burdened by a historically low-price environment for oil since 2014 and gas since 2008, it's amazing how quickly the efficiency of our industry has evolved. U.S. oil and gas drillers have upgraded their operations and technologies far faster than anybody could have predicted and are now producing at record highs. As it turns out, the long perception that U.S. crude oil production peaked in 1970 was wrong, as was the perception that U.S. gas production peaked in 2005.

Those companies that couldn't improve were forced out of the industry, with 100+ combined bankruptcies in 2015 and 2016. As reported by BNEF's 2018 Sustainable Energy Factbook, which is a must read every year, the incredible declines in breakeven costs for the U.S. natural gas industry illustrates a fact that hardly ever gets mentioned. Renewable energy technologies won't simply be handed the future: renewables won't be competing against oil and gas as they are now but as they will become. The renewable industry is evolving but so is the oil and gas industry.

The high gas prices that we saw before the shale revolution aren't really possible anymore. Our low cost gas resource base is too big. In many parts of Texas, gas can now be profitable to be produced when prices are NEGATIVE. This is because gas in the Permian comes along "free" as a byproduct when crude oil gets produced ("associated gas"). Despite having no gas-directed rigs, the Permian now yields almost 10 Bcf/d (or 13% of the U.S. total), compared to 6.9 Bcf/d this time two years ago. To gauge how impressive the breakevens shown in the graph are, consider that Henry Hub gas prices are now ~$2.75 per MMBtu.

 Data source: BNEF, 2018 Sustainable Energy in America, Factbook

Along with the other shale plays like the Utica and Marcellus in Appalachia, this hugely discounted "free gas" produced in Texas is the driving force behind our rapid and massive arrival on the global liquefied natural gas (LNG) scene - the fastest growing internationally traded commodity in the world. Looking forward, we will soon be able to export 10 Bcf/d of LNG to a gas thirsty world. Bet on U.S. LNG: right when we will have this huge capacity to export, the global market will be short because of a lack of final investment decisions in the industry over the past few years. Today's, LNG business is the midst of an about-face, falling from oversupply to undersupply, and we will be increasingly prepared to capitalize.

Data source: EIA

U.S. LNG export capacity will continue to boom and we could become the largest LNG exporter within five years.

The Trump administration should realize during its NAFTA renegotiation talks just how essential our oil and natural gas trade with Mexico (and Canada) has become. "Mexico Warms Up to China as NAFTA Falters." Let's be clear: our gas prices would simply be too low without the export outlet to Mexico, and many producers would be forced to fold operations. Hampering this widening trade route would be a huge mistake. Not just one of the great emerging economies with awesome investment opportunities, Mexico relies on gas for 60% of its electricity. And because Mexico's own production continues to fall, more and more cheap piped gas from the U.S. will be wanted to fill the void.

Our exports to Mexico have almost quintupled since 2010, but have remained flat in recent months due to pipeline bottlenecks, which often force Mexico to import pricier U.S. LNG. For example, if you go back to early last summer, Mexico at this time was supposed to be importing ~5.5 Bcf/d of U.S. gas. Although these higher volumes haven't materialized yet, eventually they will. U.S. piped gas capacity to Mexico will jump 40% to ~15 Bcf/d by the end of next year. Not just for current NAFTA talks, but this U.S.-Mexican energy alliance must also be fully appreciated by the winner of Mexico's presidential election in July.

Shell and Blackstone Targeting BHP Billiton’s Shale Assets in the U.S.  Shell and U.S. private equity firm Blackstone are reportedly planning a $10 billion joint takeover bid for BHP’s U.S. shale assets, which include holdings in the Eagle Ford, Permian, Haynesville and Fayetteville plays.

Citing banking sources, Sky News said Thursday the joint offer would be only one of several credible proposals BHP is expecting to receive for the U.S. shale operations. Partnering with Blackstone provides Shell with additional “financial firepower,” the report said.

BHP – the world’s largest miner – announced last year plans to dispose of its onshore U.S. business. A deal is expected later this year, but in case that fails, BHP has previously suggested it would consider a U.S. asset spinoff. Last week, it said asset swaps could also be an alternative.

The unit holds more than 838,000 net acres in four prolific U.S. shale areas, producing crude oil, condensate, gas and natural gas liquids (NGLs). The Black Hawk area of the Eagle Ford and the Permian area are two of its largest liquids-focused assets, Kallanish Energy reports.

BHP Petroleum’s president Steve Pastor, said “shale is just simply not as capital-efficient as the other opportunities for investment across the BHP portfolio, and it's failed to generate competitive returns on capital employed.”

The firms declined to comment on the potential bidders.

NatGas Sweet Spots in the Appalachian Basin (Thank you, BTU Analytics)  Pipeline takeaway out of the Northeast has been the key focus of producers and investors in U.S. natural gas assets over the past decade.  While several major pipeline projects are expected over the next two years, the end of the buildout is appearing on the horizon.  And as Marcellus and Utica production continues to grow, a new concern is coming to the forefront —sweet spot exhaustion.  Astute listeners may have heard Range Resources CEO Jeff Ventura mention the topic on the company’s year-end 2017 conference call on February 28, 2018.  While no one doubts that the Appalachian Basin contains world-class resources and enormous amounts of gas-in place, not all of this resource can be developed at $3.00/MMbtu gas.  Today let’s explore the size of the region’s sweet spots and just how quickly they may be drilled through.

The map below shows BTU Analytics’ economic analysis of wellhead breakevens aggregated into 3×3 mile boxes across Southwest Appalachia.  Let’s keep the focus on SW Appalachia in this commentary, as infrastructure dynamics will impact inventory drawdown in SW Appalachia and Northeast Appalachia differently.

The green boxes highlight acreage with expected breakevens sub $3.00/MMbtu at the wellhead.  This analysis is based on results from wells brought to sales 2014 to present.  Note that the blue boxes indicate areas where wells have been drilled but economics are not estimated.  These are boxes where wells were either drilled prior for 2014 and not since or where wells have been drilled more recently but well level production isn’t yet available to estimate economics.  We don’t draw down locations within these boxes for the purposes of this Energy Market Commentary.

The next map shows how startling the drawdown of inventory in the sweet spots of SW Appalachia could be as we exhaust more than 6,000 locations over the next five years.  This illustration assumes that the most economic locations are drilled first, and we can see that large portions of Washington, Belmont and Tyler counties would be drilled out if that were the case.

  After ten years of drilling, much of Washington County has been consumed and large swaths of Eastern Ohio have also been drilled.

So is this finally the bullish case for natural gas?  What does this mean for natural gas pricing?  Will Barnett producers finally have a day in the sun?!  For more information on our inventory estimates by breakeven across all the major basins, request a sample of our E&P Positioning Report.  And sign up to be among the first to see a sample of our Long Term Gas Forecast Product, including 30-year expectations for natural gas fundamentals and price, and our full inventory blowdown by breakeven analysis, launching 2Q 2018.

PTTGC Cracker Getting Bigger, But No FID.  Ohio Gov. John Kasich said Monday two international energy companies now control roughly 500 acres of property needed to build the planned Belmont County ethane cracker -- a project he said could now cost up to $10 billion.

During a Monday news conference at the Ohio Statehouse, Kasich formally announced the partnership between Thailand-based PTT Global Chemical and South Korea’s Daelim Industrial Co., a pairing initially reported in late January, Kallanish Energy reports.

“It’s great to see these two world-class companies coming together to develop an exciting 21st century industry that will dramatically transform Ohio,” Kasich said. “Building this massive ethane cracker plant here will be a game-changer, not only for eastern Ohio, but for the entire state, as it will create so many new opportunities for economic development.”

Two-and-a-half years ago, PTT officials joined Kasich at the Statehouse to announce plans to spend $100 million for engineering and design work, the Wheeling (WV) Intelligencer newspaper reported. Monday, JobsOhio president John Minor said this investment has already passed $150 million.

Initially, the estimated cost of the cracker plant to be built along the Ohio River at Dilles Bottom, Ohio, was $5.7 billion. Kasich and Minor said Monday the cost could now go as high as $10 billion, as the partnership of PTT and Daelim allows the companies to make the plant even larger than originally planned.

“The investment plans include significantly more ethylene output at a larger facility that would have a greater economic impact throughout the state for decades to come,” Minor said, the Intelligencer reported.

Monday, Daelim Petrochemical Division CEO Sean Sang Woo Kim said the Dilles Bottom site offers many advantages, such as proximity to plastics markets in the northeast.

PTT chief operating officer Kongkrapan Intarajang said officials would make use of local resources, likely powering the giant plant with natural gas. He said the cracker would process roughly 100,000 barrels of ethane each day.

Kasich said President Trump’s tariffs on foreign steel and aluminum would likely increase the cost of the Belmont County project, but said he did not believe this would deter investors.

“We hope to have Daelim and PTT reach a final investment decision later this year,” Minor added.

New York Loses!  Millennium Moves Forward.  A U.S. appeals court has ruled against New York State’s attempt to block Millennium Pipeline’s Valley Lateral project, designed to flow natural gas to a $900 million power plant under construction.

The court sided with the Federal Energy Regulatory Commission’s ruling that New York waived its right to act on the pipeline by failing make a decision on a key water permit within a year.

The decision removes the last obstacle to the Valley Lateral project, which has been discussed for roughly three years, Kallanish Energy understands.

New York had previously denied a water certificate to Williams Cos.’ Constitution line, and New Jersey is urging federal regulators to rescind approval of the $1 billion PennEast project.

The court’s decision may make it more difficult for states to block lines by withholding permits, according to ClearView Energy Partners.

“This is about the state permit that New York has been trying to wield as a ‘veto,”’ Christi Tezak, a managing director at ClearView in Washington, told Bloomberg. The court ruling “does provide certainty about what the timeline is. We don’t expect pipelines to go in super early, but we don’t expect to see states trying to manipulate the timeline.”

Millennium and the New York State Department of Environmental Conservation didn’t immediately respond to requests for comment.

The 7.8-mile Valley Lateral line will flow gas to Competitive Power Ventures Inc.’s CPV Valley Energy Center in Wawayanda, N.Y., roughly 70 miles northwest of Manhattan Island.

Competitive Power Ventures is backed by private equity firm Global Infrastructure Partners, while Millennium’s owners include TransCanada, DTE Energy and National Grid.

Lower 48 DUC’s Are Rising.  The number of drilled, but uncompleted wells in the Lower 48 U.S. states’ seven most productive plays jumped by triple digits from January to February, the Energy Information Administration’s Drilling Productivity Report (DPR) for March Lower 48 DUCs reveals.

The March DPR reports 110 drilled, but uncompleted wells (DUCs) were added in February to the January total, raising said total to 7,601, Kallanish Energy reports.

Just three of the seven plays recorded a January-to-February increase in DUCs, led by the Permian Basin, where 122 wells were drilled, but uncompleted from January to February. Total DUCs in the play rose to 2,937 from 2,815.

The largest decrease in DUCs was recorded in Appalachia (the Marcellus and Utica Shale plays), down 19 uncompleted wells, to 743 from 762.

Other plays adding DUCs from January to February were the Eagle Ford Shale, up 30 DUCs, to 1,492 from 1,462, and the Anadarko, which added two DUCs, to 1,017 from 1,015.

Other regions where the number of DUCs dropped from January to February included the Niobrara, down 16 DUCs, to 537 from 553; the Haynesville Shale, down five DUCs, to 167 from 172; and the Bakken, down four DUCs, to 708 from 712.

Texas Feb. Permits Up.  The Railroad Commission of Texas issued a total of 1,097 original drilling permits in February 2018, up 10.7% from 991 permits issued in February 2017, Kallanish Energy calculates.

The February 2018 total includes 975 permits to drill new oil or gas wells, 15 to re-enter plugged well bores and 107 for completions of existing well bores, the state agency reported.

Those permits include 284 for oil, 87 for gas, 647 for oil or gas, 68 for injection, and 11 other.

In February 2018, the commission approved 672 oil completions, plus 149 gas completions, 56 injection completions and five other completions. That compares to 533 oil, 95 gas and 49 injection completions in February 2017.

Total well completions processed in 2018 are 1,845, up from 1,213 recorded in 2017 -- a 52.1% increase. 

Texas had 490 drilling rigs at work on March 9, according to Baker Hughes. That represents about 50% of all rigs in the U.S.

The Midland area was No. 1 for permits to drill oil and gas wells, with 455, the commission said. Second was the San Antonio area, with 131 permits and third was the Refugio area, with 112.

For oil completions, the Midland area was first with 401 permits. Second was the San Angelo area, with 75 and third was North Texas region, with 41.

For gas completions, the Midland area was first with 49 permits. It was followed by the Refugio area, with 27 and East Texas, with 21 permits.

EQT Head Steps Down.  The head of the natural gas company behind the Mountain Valley Pipeline stepped down Thursday, citing personal reasons.

Steven Schlotterbeck resigned as president and chief executive officer and from the Board of Directors of EQT Corp., according to a news release from the Pittsburgh-based company.

“We thank Steve for his dedicated service to EQT and its stakeholders over the last 18 years. Steve was a valued contributor as EQT transformed from a regional, retail gas company into the largest natural gas producer in the United States,” the Board of Directors wrote in a statement.

David Porges, who served as executive chairman from March 2017 until February 2018 and held other leadership positions before that, was appointed to take Schlotterbeck’s position in the interim.

EQT is one of the companies behind the Mountain Valley Pipeline, a 303-mile-long natural gas pipeline that would tap into Marcellus and Utica shale production and run from Wetzel County, West Virginia, to Pittsylvania County, Virginia. Mountain Valley Pipeline, LLC, is a joint venture between EQT Midstream Partners, NextEra US Gas Assets, Con Edison Transmission, WGL Midstream and RGC Midstream, according to the pipeline’s website.

When it’s built, EQT Midstream Partners will operate and own a significant interest in the joint venture.

Schlotterbeck’s resignation will not affect the building of the pipeline, EQT spokeswoman Natalie Cox said in an email.

Rover Halted in WV.  A West Virginia regulatory agency has ordered Rover Pipeline to halt construction because of multiple water pollution violations in the counties of Doddridge, Tyler and Wetzel, Kallanish Energy understands.

The order came in a March 5 letter from the West Virginia Department of Environmental Protection to Energy Transfer Partners, the company behind the $4.2 billion Rover natural gas pipeline.

The offenses along the pipeline’s Sherwood Lateral included no erosion control devices to curtail sediment-laced runoff to streams, DEP said, in a 55-page filing.

ND Production Up in January.  North Dakota oil and natural gas production in January jumped significantly from one year ago, despite harsh winds, subzero temperatures and power outages.

Crude production jumped more than 20%, to 1.18 million barrels per day (MMBPD), from 980,294 BPD in January 2017, Kallanish Energy calculates.

North Dakota is projected to break its oil production record of 1.2 MMBPD in May or June, according to Lynn Helms, North Dakota director of Mineral Resources.

Regulators have seen an uptick in applications for drilling permits, indicating the oil industry is planning to increase activity this spring and summer.

Natural gas production during January averaged 2.07 million cubic feet per day (MMcf/d), up a whopping 32.9% increase from January 2017’s 1.56 MMcf/d average production.

Companies flared 310 MMcf/d in January, or roughly 15% of gas produced statewide. The figures show an increase in flaring since December but fall within the gas capture targets set by the North Dakota Industrial Commission.

North Dakota saw an increase in rail transportation of crude oil in January, up 5 percentage points, to 14%.

Rex Selling Marcellus Assets.  Pennsylvania-based Rex Energy announced the sale of non-operated oil and gas interests in three Pennsylvania counties to XPR Resources for $17.2 million, Kallanish Energy reports.

The deal covers assets in Westmoreland, Centre and Clearfield counties. Under the purchase and sale agreement, the effective date is Jan. 1, 2018. The deal also includes associated production and other anciliary assets.

The assets being sold are non-core and were not included in the company’s future development plans. Included in the sale are 61 gross wells that are producing approximately 8.2 million cubic feet per day (MMcf/d).

The transactions are expected to close within 15 days.

Rex Energy has operations in western Pennsylvania and Ohio, and has said in recent Securities and Exchange Commission filings it is looking at perhaps reorganizing under federal bankruptcy protection.

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PA Permits March 8, to March 15, 2018

            County                                   Township                                          E&P Companies

  1. Cameron                                     Shippen                                             Seneca
  2. Cameron                                     Shippen                                             Seneca
  3. Cameron                                     Shippen                                             Seneca
  4. Cameron                                     Shippen                                             Seneca
  5. Cameron                                     Shippen                                             Seneca
  6. Cameron                                     Shippen                                             Seneca
  7. Cameron                                     Shippen                                             Seneca
  8. Cameron                                     Shippen                                             Seneca
  9. Westmoreland                            Sewickley                                          Chevron

OH Permits for week ending March 10, 2018

           County                                   Township                                          E&P Companies

  1. Belmont                                       Union                                                 Ascent
  2. Belmont                                       Union                                                 Ascent
  3. Belmont                                       Union                                                 Ascent
  4. Guernsey                                    Richland                                            Ascent
  5. Jefferson                                     Mt. Pleasant                                      Ascent
  6. Jefferson                                     Mt. Pleasant                                      Ascent
  7. Jefferson                                     Mt. Pleasant                                      Ascent
  8. Monroe                                        Ohio                                                   Eclipse Resources
  9. Monroe                                        Ohio                                                   Eclipse Resources
  10. Monroe                                        Ohio                                                   Eclipse Resources
  11. Monroe                                        Benton                                               Triad Hunter
  12. Monroe                                        Ohio                                                   Triad Hunter
  13. Monroe                                        Benton                                               Triad Hunter

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Northeast Supply Enhancement