Shale Directories Seminars
Upstream PA 2019
April 17, 2019
Penn Stater Conference Center
State College, PA
Appalachian Storage Hub Conference
June 6, 2019
Hilton Garden Inn
Southpointe, Canonsburg, PA
Latest facts and a rumor from the Marcellus, Utica, Permian, Eagle Ford, and Bakken Shale Plays
CAPEX Spending for 41 E&P Companies in 2019. (BTU Analytics, Thanks you.) As we talked about last March, initial capital expenditure (capex) budgets announced by public E&Ps for the upcoming year can provide a good benchmark for how they are currently thinking about their assets. When compiled together, the budgets offer insight into the trajectory of a region’s production. However, those budgets can change. In our most recent Upstream Outlook, we analyzed how the capital budgets of some of the largest public independents changed for 2019 and the impact to our production outlook. Today’s Energy Market Commentary will provide an overview of currently planned capital spending in 2019.
On average, E&Ps in our sample increased their drilling and completion (D&C) budgets by 10% compared to initial plans throughout 2018. Higher commodity prices drove management teams to accelerate capital spending. That exuberance didn’t last. Following a $30 price correction to finish 2018, E&Ps highlighted capital discipline and a decline in capex for 2019. Now that we’ve taken a closer look at these capex plans for 2019, what trends do we notice?
In short, planned 2019 US onshore D&C spending for 41 E&Ps looks about the same as it did when 2018 budgets were announced a year ago. Those 41 E&Ps represent about 44% of current horizontal rig activity. However, compared to actual capital spending for 2018 this subset of independents is planning to put less capital in the ground in 2019.
How this capital is distributed between major basins varies considerably. The chart below shows the cumulative drilling and completion budgets for 41 E&Ps (and the companies they have since acquired) initially announced for both 2018 and 2019. Planned capital spending in 2019 increased by an average 6% for liquids plays compared to initial 2018 capital plans. However, planned spending in the natural gas regions of Appalachia and the Haynesville is almost 20% lower.
Permian D&C Spending Flat in 2019
While initial D&C plans in the Rockies and Bakken saw sizable increases between 2018 and 2019, Permian spending is relatively consistent. This is far from a signal of slowing Permian momentum.
As a result of Permian infrastructure bottlenecks, the Permian has compiled large backlog of drilled but uncompleted wells (DUCs) over the past few years, as shown by the chart below. Producer capital spending is falling from its peak but also where the dollars are being spent is changing. In order to conserve capital, operators will cut drilling in 1H2019 and then increase completion activity in 2H2019. The slowing in drilling and subsequent uptick in completions will result in eventual decline in the number of DUCs in the Permian. Many of these DUCs were drilled in 2018 or before, offering producers a way to reduce spending, but still fuel growth in 2019 and 2020.
Northeast Capex Decline
In the Northeast, production growth is likely to be more impacted by the substantial decline in planned E&P capex spending. BTU has consistently called for a slowdown in Northeast production growth in our forecasts, as we highlight in our new Gas Basis Outlook. 2019 producer announcements for Capex and production growth appear to support that call.
The chart below highlights the 2019 production growth targets for some of the larger public Northeast E&Ps compared to their historical production growth. All of the producers shown below are planning for slowing or even declining production, with the exception of Cabot. Cabot operates in Northeast Pennsylvania and has subscribed pipeline capacity that it is planning to grow into.
While the changes to D&C spending for major E&Ps could translate to shifts in production dynamics across the US, it’s important to note that this is only part of the story. Majors continue to grow their foothold in the unconventional space, especially in the Permian. Additionally, many plays like the Haynesville have a large presence of private operators that do not disclose capital budgets. Capex budgets can also change rapidly, as we saw during 2Q earnings reports last year. With crude prices rising once again, 2019 could prove to be another test for operators to show how disciplined they truly are with their capital.
Keep up to date on BTU Analytics’ views on US natural gas, oil and NGL production by requesting a copy of our Upstream Outlook report.
Pin Oak Energy Partners Purchases Shell’s NW PA acreage. Independent exploration and production company Pin Oak Energy Partners said Wednesday it’s closed a deal with a Royal Dutch Shell affiliate for Utica Shale play acreage in Northwest Pennsylvania.
No purchase price was disclosed, Kallanish Energy reports.
Pin Oak’s deal with SWEPI LP is for roughly 43,000 acres located in Mercer, Crawford and Venango counties, and are primarily held by production (Hbp).
“This transaction further bolsters the company’s deep Utica rights in the oil and wet gas windows of the play,” said Mark Van Tyne, Pin Oak’s chief business development officer. “The fact that the majority of the acreage is Hbp affords us time to more thoroughly evaluate the region as we high grade locations for economic development.”
The acquisition also included drilled and completed, but not online, horizontal Utica Shale wells, along with previously built, but not drilled, well pads, according to Pin Oak.
Pin Oak Energy’s net acreage position in Mercer, Crawford and Venango counties has increased to a total of 60,000, 5,500 and 7,100, respectively.
The four-year-old, Ohio-based Pin Oak now maintains 178,000 acres (167,000 net acres), along with over 125 miles of midstream assets in the Appalachian Basin. A total of 99% of the net acreage is Hbp.
The company currently operates wells producing nearly 14 million cubic feet-equivalent per day net (11% liquids).
Shell is one of the largest leaseholders and producers in the Appalachian Basin, with its acreage leasehold totaling roughly 850,000 acres, primarily in Pennsylvania. The company entered the region in 2010 after acquiring 750,000 leasehold acres for $4.7 billion in cash from East Resources.
Dutch, Chinese and South Koreans Could Be Controlling the Appalachian Basin. The investment last week by SK Global, a South Korea’s third largest conglomerate after Hyundai and Samsung, in Blue Racer is indicative of what is coming to the Marcellus and Utica in the Appalachian Basin. SK Global’s move and Daelim’s JV with PTT indicate that the South Koreans are very interested in the downstream opportunities to be realized by the petrochemical industry in the Ohio River Valley. After all, it’s the cheapest place in the world to manufacturer petrochemicals.
These moves coincide with comments I’ve heard from individuals that the South Koreans are all over Belmont County, Ohio and Wheeling, West Virginia. Another person told me last April that South Korean companies were calling a Canton, Ohio moving and storage company almost every day.
The South Korean’s are little late when compared to the Dutch and Chinese. In mentioning the Dutch, I’m referring to Royal Dutch Shell which is building the cracker plant in Monaca in Beaver County, Pennsylvania. Another Dutch chemical company LyondellBasell is in the process of purchasing Braskem from Oldebrecht, a Brazilian petrochemical company. In purchasing Braskem, LyondellBasell will be building a cracker plant in Parkersburg, West Virginia. Braskem worked with the authorities in West Virginia when it purchased a site in Parkersburg to build a cracker plant. The LyondellBasell purchase should be completed sometime in 2019. In speaking with midstream companies in the Parkersburg area, I’ve heard that once LyondellBasell finalizes the Braskem purchase it will move quickly to start on the cracker plant.
Lastly, we have the Chinese who made a big splash when Trump traveled to China in November 2017. The $84 billion non-binding trade agreement between China Energy Investment Corporation and the state of West Virginia has gone quiet with trade negotiations. China is in dire need for natural gas. One can assume that when the trade negotiations are completed the Chinese will be back in West Virginia.
It’s too bad that all the American petrochemical companies are well-established in the Gulf and are not looking to make a move into the Appalachian Basin. If the Dutch, Chinese and South Koreans are successful, we’ll see more petrochemical companies making moves in the Basin. It will probably be more Asian companies.
Cushing-to-Houston Pipeline Could Be Expanded. A Cushing-to-Houston light oil pipeline project pitched to help Bakken and Midcontinent producers send crude to the Texas Gulf Coast could expand to take additional barrels from the Permian. Magellan Midstream Partners LP and Navigator Energy Services have been holding an open season call for a 300,000 barrel per day pipeline project that would move shale oil sent to Cushing onto refineries or an export site in Houston since early 2019. The partnership recently announced a plan to extend the open season until May 31 to allow for the possibility of adding an oil origination point in Midland, Texas. According to Magellan and Navigator, several potential shippers have requested the evaluation of adding a Midland origin point to the pipeline to help move barrels from the Permian.
Trump Planning open NY State for Pipelines. White House adviser Larry Kudlow says Pres. Trump will soon issue an executive order intended to open the door for more natural gas pipelines and exports of liquefied natural gas, pushing back against states such as including New York that have blocked interstate natural gas pipelines.
New York in recent years has blocked the construction of several pipelines that would transport gas from the Marcellus shale in Pennsylvania to New England, including Williams’ (NYSE:WMB) Constitution and Northeast Supply Enhancement and National Fuel Gas’s (NYSE:NFG) Northern Access.
It is not clear how a new executive order would overrule the authority of states to rule on pipelines.
Meanwhile, the Federal Energy Regulatory Commission earlier this week denied New York’s request to rehear the agency’s 2018 decision that New York regulators had waived their right to decide on a water quality certification for NFG’s Northern Access project because the state waited too long; WMB has made a similar argument in support of its Constitution pipeline.
U.S. Shale Oil to Peak after 2030. Production of the so-called shale, or tight oil, will continue to increase through 2030 and reach more than 10 million barrels per day in the early 2030s, the Energy Information Administration said. EIA projects further U.S. tight oil production growth as the industry continues to improve drilling efficiencies and reduce costs, which makes developing tight oil resources less sensitive to oil prices than in the past, according to the EIA’s Annual Energy Outlook 2019. Tight oil, or shale oil, production refers to extraction of crude oil contained in low-permeability formations that, thanks to technological advances, started to be tapped resulting in soaring production in the United States and becoming in 2015 the more common form of oil production. Shale oil production reached 6.5 million barrels per day in the United States in 2018, accounting for 61% of total U.S. production.
DOE’s Appalachian Basin NGLs Report. In real estate, as the old adage goes, it’s all about “location, location, location.” If last year’s U.S. Department of Energy (DOE) natural gas liquids (NGLs) report put the Appalachian region on the map, a more recent update serves as a big, bright neon “welcome” sign. The DOE’s recently released Natural Gas Liquids Primer forecasts that surging Appalachian Basin natural gas production will quadruple total eastern United States natural gas production from 2013 levels by 2050. And because the Appalachian Basin is a major “wet gas” producer, the DOE also projects natural gas liquids production will increase more than 700 percent in the region from 2013 levels by 2023. For those who may not be familiar with the term, “wet gas” includes ethane, propane, butane, iso-butane and natural gasoline, which is separated at processing plants and is then used to make numerous everyday petrochemical products. Specifically, the DOE report brings to focus larger projections for ethane production from the Marcellus and Utica shale plays than had been previously estimated, as well as updates on infrastructure developments in the Appalachian region, and “research and development opportunities related to natural gas and NGLs production, conversion, and storage.”
Texas reported statewide production in January of 96.06 million barrels (Mmbbl) of crude oil and 679.55 million cubic feet (Mmcf) of natural gas, Kallanish Energy reports.
Preliminary totals reported in January 2018 were 80.58 Mmbb of crude, and 573.93 Mmcf of natural gas, said the Railroad Commission of Texas.
The 2018 data later grew to 103.99 Mmbbl of crude, and 699.47 Mmcf of natural gas as additional data was submitted to the state agency.
TX January Production Up. Average daily production in January 2019 was up significantly over January 2018, the commission reported. Average daily production of crude oil in January 2019 was 3.10 Mmbbl, up 19.2% from January 2018’s 2.60 Mmbbl.
Average daily natural gas production jumped from 18.51 Mmcf in January 2018, to 21.92 Mmcf. That is an 18.4% increase.
The results came from 175,056 oil wells and 89,379 natural gas wells, the commission reported.
The Top 5 counties for oil production in January 2019 were Midland, Karnes, Loving, Reeves and Martin. The Top 5 counties for natural gas production were Webb, Reeves, Tarrant, Midland and Karnes.
The Top 5 counties for condensate production were Reeves, Culberson, Loving, Dimmit and Karnes.
TX NatGas Hits Record Low. The gas price at Waha registered a low last Thursday of minus $2.50 per million British Thermal Units and closed at minus $1.95, its lowest level since S&P Global Platts started collecting the data back in 1994. The steep negative prices last week were in part caused by equipment failures on one pipeline system and planned maintenance on another, which made it harder to find outlets for unwanted gas. The fundamental problem in west Texas, however, is that there is a growing oversupply of gas that is a byproduct of booming crude output in the shale oilfields of the Permian Basin. That surge of surplus gas, which could continue for years, is expected to have global implications. Since the start of 2016, oil production in the Permian region of Texas and New Mexico has risen by about 120 per cent, more than doubling as the rebound in crude prices encouraged a new shale development boom. But the reserves also hold large volumes of natural gas, which is extracted along with the crude. The region’s gas production has also soared by 120 per cent over the same period.
Permian in-Basin Frac Sand Becoming #1. The gas price at Waha registered a low last Thursday of minus $2.50 per million British Thermal Units and closed at minus $1.95, its lowest level since S&P Global Platts started collecting the data back in 1994. The steep negative prices last week were in part caused by equipment failures on one pipeline system and planned maintenance on another, which made it harder to find outlets for unwanted gas. The fundamental problem in west Texas, however, is that there is a growing oversupply of gas that is a byproduct of booming crude output in the shale oilfields of the Permian Basin. That surge of surplus gas, which could continue for years, is expected to have global implications. Since the start of 2016, oil production in the Permian region of Texas and New Mexico has risen by about 120 per cent, more than doubling as the rebound in crude prices encouraged a new shale development boom. But the reserves also hold large volumes of natural gas, which is extracted along with the crude. The region’s gas production has also soared by 120 per cent over the same period.
Stonepeak Buys Oryx. Stonepeak Infrastructure Partners said Tuesday funds the private equity firm manages are acquiring all the assets of Oryx Midstream for $3.6 billion in cash.
Affiliates of Quantum Energy Partners, Post Oak Energy Capital, Concho Resources, WPX Energy, and other, unnamed investors were the Oryx sellers, Kallanish Energy reports.
Oryx will retain its name and continue to be headquartered in Midland, Texas. Its leadership team, led by Brett Wiggs and Karl Pfluger, will remain in their current roles and are investing with Stonepeak in this deal.
“We are grateful for our productive five-year relationship with Quantum and Post Oak, whose knowledge and industry expertise were strong factors in our growth and success to-date,” said Wiggs, CEO of Oryx.
Oryx is the largest privately-held midstream crude operator in the Permian Basin. The company owns and operates a crude oil gathering and transportation system underpinned by nearly one million acres under long-term dedications from more than 20 customers.
The system’s 2.1 million barrels of storage and roughly 1,200 miles of in-service and under-construction pipeline span eight counties in Texas and two in New Mexico.
Upon completion of the remaining part of the system under construction, Oryx’s total Delaware Basin transportation capacity will ultimately exceed 900,000 barrels per day and access multiple takeaway options.
“Stonepeak is delighted to partner with the Oryx management team to build upon the impressive franchise they have established … ,” said Jack Howell, partner and head of Stonepeak’s energy business.
Barclays, acting through its investment bank, advised Stonepeak on the transaction. A Barclays-led arranger group including Goldman Sachs, RBC Capital Markets, and Jefferies has provided a $1.5 billion Term Loan B in support of the transaction, which will include a refinancing of the existing Oryx Southern Delaware Holdings facility and consolidation of Oryx Southern Delaware Holdings and Oryx Delaware Holdings into a single borrower.
Jefferies and Citi acted as financial advisors to Oryx and its sellers. Shearman and Sterling and Vinson & Elkins served as legal counsel to Oryx.
Stonepeak was represented by Hunton Andrews Kurth and Sidley Austin in the transaction, and Simpson Thatcher & Bartlett was the buyer’s fund counsel. Latham & Watkins represented the lender group.
Quantum Energy Partners is a private equity firm; Post Oak Energy Capital is an energy-focused private investor.
PA Largest Exporter of Electricity in the U.S. Pennsylvania was the largest net exporter of electricity in the United States from 2013-2017, according to the U.S. Energy Information Administration. California was the largest net importer during the same time period. The EIA said Pennsylvania sent an annual average of 59 million megawatt hours of electricity to other states — and to a lesser degree, Canada and Mexico — from 2013-2017. Pennsylvania’s gross natural gas production, primarily from the Marcellus Shale, reached nearly 5.5 trillion cubic feet in 2017.
Pennsylvania was the nation’s second-largest natural gas producer in 2017, after Texas. In addition, the Appalachian region — Pennsylvania, Ohio and West Virginia (Marcellus and Utica shales) — remained the largest natural gas-producing region in the United States in 2018.
BlackGold Acquires Overriding Royalty Interests. Private credit investment firm BlackGold Capital Management, in conjunction with unnamed co-investors, has acquired a portfolio of overriding royalty interests (Orri) in Ohio’s Utica shale for an undisclosed price.
The Orri will provide investors a portion of the revenue from natural gas production. Houston-based BlackGold has also partnered with an “established management team with a track record of investing in Orris,” the company said.
“We believe there is strong demand for us to fill a gap left by banks and provide capital to middle market energy companies, as evidenced by our robust pipeline of funding opportunities,” said Adam Flikerski, BlackGold co-founder.
BlackGold Capital Management, founded in 2006, has invested over $7.5 billion in both public and private energy companies, across upstream, midstream, and oilfield services, Kallanish Energy reports.
The firm manages roughly $1 billion in capital across its investment platform, which includes public and private commingled strategies as well as managed accounts. Global investment giant KKR & Co. holds a 24.9% passive minority interest in BlackGold Capital Management LP.
PA Permits March 21, to March 28, 2019
County Township E&P Companies
- Potter Homer JKLM Energy
OH Permits for week of March 23, 2019
County Township E&P Companies
- No new permits this past week.
Joe Barone moc.s1560717093eirot1560717093cerid1560717093elahs1560717093@enor1560717093abj1560717093 610.764.1232