Facts & Rumors Newsletter #446 November 6, 2021

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November 11, 2021

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

Petrochemical Company Coming to NEPA. Some super-exciting news to share about a massive, $6 billion petrochemical plant coming to northeastern Pennsylvania. On Friday, PA State Sen. John Yudichak, who wisely left the Democrat Party and became an Independent, announced Nacero Inc. will build a $6 billion manufacturing facility on the site of a former coal mine in Newport Township and Nanticoke in Luzerne County, PA. The plant will convert Marcellus natural gas into zero-sulfur gasoline for use in their existing cars and trucks without modification.

Construction of the plant will create 3,500 jobs to build the massive facility (located on 3,000 acres), with all the building trades involved. Once completed, the Nacero facility will employ 450 high-tech jobs that will pay $85,000 per year!

Four Shale Produces Will Not Increase Production. Four major shale oil and gas drillers reported hefty gains in free cash flows from high natural gas prices in the third quarter, and they vowed not to spend it to increase production.

“What we don’t want to do is get back to this cycle where capital is destroyed by the industry putting the pedal to the floor when times are high and then suffering when times are low,” Coterra Energy Inc. President and CEO Thomas Jorden told analysts on a Nov. 3 conference call on the quarter’s results. “We’re going to be disciplined. We’re going to move prudently.”

Jorden could have speaking for the group of shale producers — Coterra, the new name for the combination of oil producer Cimarex Energy Co. and shale gas giant Cabot Oil & Gas Corp.; Haynesville Shale driller Comstock Resources Inc.; and Appalachian drillers Gulfport Energy Corp. and Chesapeake Energy Corp. All four pledged not to chase higher prices indicated by the futures markets and instead reap the extra cash.

The companies reported double-digit percentage gains in the average realized price for their gas, including hedges. Gulfport had the smallest increase, 22% to $2.74/Mcf when compared to last year. Coterra had the biggest change, up 69% to $2.65/Mcf compared to the third quarter last year.

The producers reported solid cash flows, with three of the four — Comstock, Gulfport and Coterra — turning last year’s third-quarter cash flows from negative to positive this year. Chesapeake’s cash flows shrunk 22% because of higher spending last year for bankruptcy-related items.

Three of the companies — Coterra, Chesapeake and Comstock — met or beat the profit expectations of analysts surveyed by S&P Global Market Intelligence.

Coterra used extra free cash of $125 million to bring the payment of a 17.5 cents per share variable dividend ahead by one quarter. Coterra will be paying a base plus variable dividend of 30 cents per share in November instead of the first quarter of 2022.

Chesapeake said it would use the extra cash to fund a 27% increase in the size of its base dividend to 43.75 cents per share, payable in December, while investigating the addition of an extra variable dividend starting next year.

Gulfport said it would use its cash to buy back $100 million worth of shares, while Comstock said its cash would go to retiring debt early. Comstock is insulated from general investor pressure by the nearly 60% stake held by Dallas Cowboys football team owner Jerry Jones.

Only two of the companies reported an increase in gas production year over year: Chesapeake and Comstock. Both noted that their production increases are being driven by increased demand from Louisiana’s Haynesville Shale, which is right next to the Gulf Coast’s LNG terminals.

“Now, all of a sudden, you can see the demand for the gas in U.S. and others worldwide,” Comstock Chairman and CEO Jay Allison said on his call. “This global demand for gas … they need it in Europe; they need it in Asia; they need it here. I think those [final investment decisions] are looking positive to add some more export facilities within the next several years.”

The increase in sales of gas for export is driving companies to beef up their environmental and emissions monitoring capabilities as overseas customers want lower-carbon products. Chesapeake said in its third-quarter earnings release that it started retrofitting the 19,000 pneumatic controllers in its operations to reduce their methane emissions and make more of the company’s gas ready to be certified as “responsible natural gas,” or RNG.

“We remain on track to fully certify 100% of our Gulf Coast production as responsibly sourced gas this year and Appalachia production by the middle of 2022,” Chesapeake President and CEO Domenic Dell’Osso told analysts. “We expect the gas coming out of these two plays to have methane intensity of 0.02% to 0.03%. Once complete, Chesapeake will be positioned to directly deliver approximately 3 Bcf/day of certified responsibly sourced gas to end-users around the globe.”

Dell’Osso said Chesapeake supports the latest U.S. Environmental Protection Agency rulemaking on methane emissions, as well as a proposed fee for methane leaks. “We believe responsible production from unconventional resources in the U.S. has a critical role to play in helping meet these goals,” he said.

Haynesville driller Comstock announced that it was starting the certification process for its gas using a standard developed by the Rocky Mountain Institute, with Responsible Energy Solutions LLC as the auditor.

Renewables Cannot Meet Growing Energy Demand. What ‘transition’? Renewable energy is growing, but overall energy demand is growing faster. The world wants to “transition” away from fossil fuels toward green energy, but the difficult reality is this: Dirty fuels are not going away — or even declining — anytime soon. The total amount of renewable energy that’s available is growing. That’s good news for a world threatened by potentially devastating climate change. But the increase in renewable energy is still lower than the increase in global energy demand overall. A “transition” from fossil fuels may come someday, but for now, renewable energy isn’t even keeping pace with rising energy demand — so fossil fuel demand is still growing.

Killing Coal a Major Boon to NatGas. More climate finance, less coal could send US natural gas exports skyrocketing. The eye-popping financial promises made Nov. 3 at the COP26 climate summit in Glasgow, Scotland, could shift global energy markets — and, it appears, with some unintended consequences. With energy needs still growing in nations like India and China, already-booming U.S. exports of liquefied natural gas could skyrocket to replace some of the coal-fired generating capacity that will be phased out, analysts predicted. Neither the Biden administration nor other leaders at COP26, nor investors, have thus far signaled that they want natural gas production curtailed.

PA Shale Producers Leading the Country in Handling Methane Emissions. Reactions to President Biden’s plans to cut methane emissions from the oil and gas industry are mixed in Washington County. More than one hundred countries have signed the Global Methane Pledge, requiring a 30% cut in methane emissions in the next nine years. The president of the Marcellus Shale Coalition, David Callahan, tells Channel 11, “Pennsylvania’s modern natural gas operators have a long-standing commitment to advancing best-in-class environmental performance, which has results in the lowest methane intensity of producing basins and has made Appalachia one of the world’s most environmentally responsible producing regions. As methane is the very product Pennsylvania gas producers sell, it makes economic and environmental sense to ensure methane is safely and efficiently transported to market.”

VV Texas oil regulator blasts Biden’s pro-OPEC, anti-U.S. energy industry stance. World Oil. Railroad Commission of Texas Chairman Wayne Christian issued the following statement regarding new methane standards proposed by the Biden administration’s Environmental Protection Agency (EPA). “While Americans are paying $144 million more for gas per day than in the past, the Biden administration continues their efforts to tax and regulate the oil and gas industry out of existence,” said Christian. “Texas is the number one oil and gas producer in the nation, and these continued anti -oil and -gas policies will kill jobs, stifle economic growth, and make America more reliant of foreign nations to provide reliable energy.”

Texas isn’t ready for another deep freeze. Denver Gazette. Todd Staples, president of the Texas Oil & Gas Association, said it’s in the financial interests of gas companies to make sure they are operating and selling their product, adding that many companies are, in fact, winterizing. However, he contends it doesn’t make sense to apply mandates across the whole gas industry since only a portion of it supplies the state’s power sector. Power outages were the main reason for the drop in natural gas production during the storm, Staples said, citing an industry commissioned report on the event.

BofA Calls for $120-a-barrel. Gas prices are sky high, and Bank of America warns $120-a-barrel oil is on the way. Everyday Americans are getting hammered by high prices at the pump, and Bank of America thinks the pain may just be getting started. Gas prices have surged to a seven-year high of $3.40 a gallon nationally and are flirting with $4 in Nevada, Washington State and Oregon. Bank of America is now predicting that Brent crude oil, which drives gas prices, will zoom to $120 a barrel by June 2022. That’s 45% higher than current levels.

Continental Buying Pioneer’s Delaware Basin Assets. U.S. oil and gas producer Continental Resources Inc (CLR.N) said on Wednesday it has agreed to buy the Delaware Basin assets of peer Pioneer Natural Resources (PXD.N) for $3.25 billion, expanding Continental’s operations into Texas.

It is the latest sign that soaring crude prices are emboldening some U.S. energy companies to pursue deals as they seek to ramp up production.

Founded in 1967 by billionaire wildcatter Harold Hamm, Continental has focused on drilling wells in the Bakken of North Dakota and Oklahoma’s SCOOP/STACK shale formations.

The company entered Wyoming’s Powder River Basin earlier this year through a small acquisition. The deal with Pioneer gives it a claim to the Delaware portion of the Permian Basin, the heart of the U.S. shale industry.

“Continental’s foundation has always been built upon a strong geology-led corporate strategy. This continues today and has directly led us to our new strategic position in the Permian,” said Bill Berry, who took over from Hamm as chief executive at the start of 2020.

Continental’s shares dropped 5.6% on Wednesday after Reuters revealed that the companies were nearing a deal ahead of the official announcement. Pioneer shares ended trading almost flat.

“I think the move speaks to Continental’s need to add inventory and the challenges of finding it in scale in the basins where they currently operate,” said Enverus senior M&A analyst Andrew Dittmar.

Reuters reported in September that Pioneer was seeking to sell the assets in a bid to streamline its business and reduce debt after two big acquisitions this year. read more

After completing its $4.5 billion acquisition of Parsley Energy deal in January, Pioneer paid $6.2 billion for Midland-Basin rival DoublePoint Energy in May.

The Delaware deal consisted of 92,000 net acres, according to Pioneer, adding that it would book a pretax loss of as much as $1.1 billion associated with the divestment.

Pioneer was advised by Bank of America Corp (BAC.N) and law firm Vinson & Elkins. Citigroup Inc (C.N) and law firm White & Case advised Continental.

Oil Demand Over 100 Million Barrels a Day. BP says oil demand is back above 100 million barrels a day. As world leaders discuss the fight against climate change, global oil demand has bounced back above the key level of 100 million barrels a day last seen before the Covid-19 pandemic, according to BP Plc. Fossil fuel consumption is recovering despite growing urgency in the effort to curb emissions of greenhouse gases. The resurgence is pushing prices to multiyear highs and threatening the world’s economic recovery due to significant constraints in energy supplies.

The global oil production is 100 million barrels a day with little room for growth. Demand will continue to increase above 100 million barrels a day and without much production growth the outlook for continue price increases is very bullish.

Diamondback Flat Production in 2022. Shale driller Diamondback pledges flat oil output through 2022. Diamondback Energy Inc. just gave one of the first shale production forecasts for next year, and it’s holding pat. Even as the market girds for $100 crude in 2022, the Permian Basin driller is pledging to hold oil output steady at roughly the same levels it’s pumping in the current quarter. That means about 220,000 barrels a day of oil production in the world’s busiest shale patch next year, assuming it can keep spending at the same pace, it said Monday in a statement announcing third-quarter results.

Texans Getting Ready for Winter. Natural gas industry says producers are better preparing their facilities for winter. CBS 21 DFW. Like millions of other Texans, Micki Webb of Richardson had little-to-no electricity during February’s winter storms that claimed the lives of 210 people statewide. Newly passed laws require electric power plants and other generators to weatherize their facilities this winter to protect against another severe storm. Todd Staples, president of the association, agreed with Christian. “Our companies use various methods of winterization,” Staples said. “We are working with a sense of urgency and to be prepared. Maintaining power is the best winterization tool ever.”

Williams Sees Strong Demand Despite Higher Prices. (Thank you, MDN) We suppose it takes a lot to surprise the CEO of one of the world’s biggest pipeline companies. Yet yesterday Williams CEO Alan Armstrong expressed his surprise that even with the dramatic increase in the price of natural gas during the third quarter, demand for natural gas was “inelastic” and remained high. Translation: Williams had all it could do to keep up with flowing natural gas through its extensive pipeline system, even with super-high prices. Much of the demand to flow gas came from the Marcellus/Utica.

MVP Gets Closer. Mountain Valley Pipeline nears completion, but hurdles remain. As work on the Mountain Valley Pipeline winds down for another winter season, all but about 20 miles of the 303-mile-long natural gas conduit is finished, according to the lead partner of the project. “It’s in the red zone for completion” by next summer, Thomas Karam, CEO of Equitrans Midstream Corp., said in a conference call Tuesday to discuss the company’s third quarter results with financial analysts.

TX Looks to Cut Methane. As world leaders seek to rein in methane, Texas’ oil and gas industry pressured to cut emissions. Texas Tribune. The Environmental Protection Agency proposed tighter controls Tuesday on the oil and gas industry’s emissions of methane, one of the most potent greenhouse gases that causes climate change. As world leaders meet in Scotland this week to seek international agreements to slow and mitigate the effects of climate change, federal regulators released a draft of a new rule to require oil and gas companies to monitor and reduce emissions of methane, a gas that is released during the drilling of oil wells and can be leaked from oil and gas equipment.

PA Permit October 28, to November 4, 2021

County Township E&P Companies