Facts & Rumors # 538
January 13, 2024
Latest facts and rumors from the Marcellus, Utica, and Permian, Eagle Ford Plays
Chesapeake Buys SWN. Chesapeake Energy (CHK.O) said on Thursday it would buy smaller rival Southwestern Energy (SWN.N) in an all-stock transaction valued at $7.4 billion, a deal that would enable the second-largest U.S. natural gas producer to take the top spot.
The move extends a recent spate of multi-billion deals in the U.S. energy sector including Exxon Mobil’s (XOM.N) $60-billion Pioneer Natural Resources (PXD.N) offer and Chevron’s (CVX.N) $53-billion agreement for Hess (HES.N), as companies seek lucrative acreage to rebuild depleting assets.
Chesapeake has offered $6.69 per Southwestern share held, representing a discount of about 3% to the stock’s last close, according to Reuters calculation.
Southwestern’s shares fell 3% in premarket trading. The stock has gained about 2% since Reuters exclusively reported in mid-October on the deal talks. Shares of Chesapeake were up 2.5% before the bell.
Wall Street analysts viewed the deal as positive.
“Not only do we think investors will reward CHK shares in the near-term due to its size/scale, we remain optimistic that the proforma company will see multiple expansion,” said analysts at Truist Securities in a note.
U.S. natural gas prices are expected to tick higher from a jump in exports, analysts have said, after a gloomy 2023 due to record production, flat consumption, and rising natural gas inventories.
The 62% dive in the commodity price last year also weighed on profits at natural gas producers. Southwestern reported third-quarter net income that was a tenth of its year-earlier earnings.
The Southwestern bid is the biggest in Chesapeake’s efforts to add heft to a pivot to natural gas assets since emerging from bankruptcy in 2021. Last year, it beefed up its position in the gas-rich shale plays of the U.S. northeast with its $2.5 billion buyout of Chief E&D.
Meanwhile, activist investment firm Kimmeridge Energy Management, which pushed Chesapeake to move away from oil drilling, said it was “highly supportive of the merger”.
“It aligns with our long-standing framework for successful consolidation and is one of the few transactions in the sector where one plus one should turn out to be much greater than two,” managing partner Mark Viviano said on Thursday. The firm has a little over 2% stake in each company.
Most of Southwestern’s production is in Appalachia’s shale formations and the Haynesville basin in Louisiana.
Combining this acreage the pro forma company has current net production of about 7.9 billion cubic feet equivalent per day (Bcfepd), as per a statement.
The deal would also be a reversal of sorts. Southwestern had acquired some acreage in West Virginia and Pennsylvania from Chesapeake for $5.4 billion in 2014.
If the merger goes through, the combined firm would overtake EQT Corp (EQT.N) as the largest independent natural gas-focused exploration and production company in the U.S. by market value and output.
The deal is expected to close in the second quarter. Chesapeake shareholders will own about 60% of the combined company and Southwestern investors the rest.
Nick Dell’Osso, Chesapeake’s president and CEO, will head the combined company.
Biden Trying to Kill LNG Opportunities. Oil industry slams Biden over LNG, risk to energy supplies. E&E News. Officials with the country’s largest oil and gas lobby lambasted the Biden administration’s record Wednesday, including reports that the Department of Energy is considering stricter reviews for liquefied natural gas export facilities. The criticisms highlight a political conundrum for President Joe Biden as he heads into the 2024 campaign and works to balance demand for affordable energy with climate change concerns. The comments from the American Petroleum Institute — which held its annual energy summit in Washington — offered examples of how the industry and sympathetic lawmakers are attacking the incumbent president. During the event, API debuted an advocacy campaign called Lights on Energy, which provides industry arguments and recommendations for U.S. policymakers. It includes an eight-figure national TV and digital advertising buy, according to the oil and gas trade group.
Fracking Made U.S. #1 LNG Exporter. How fracking helped the U.S. become the world’s top LNG exporter. Yahoo Finance. Instead of an ongoing decline, by 2007 U.S. natural gas production was moving substantially higher. The industry was in the early stages of the largest expansion of U.S. natural gas production in its history. A decade later, natural gas production was 50% higher than the level in 2007. Today, it is 86% higher and still climbing. Along the way, LNG import terminals were converted into LNG export terminals, and many more were built. Natural gas expansion was so dramatic, that in 2016, the U.S. began to sharply increase LNG exports. At first, exports were a drop in the bucket compared to those of Qatar and Australia — the world’s two largest LNG exporters. But the rise was steep, and by 2022 it looked like a possibility that the U.S. could soon overtake those countries as the world’s largest LNG exporter.
Why Is New England Left Out in the Cold? America has plenty of natural gas. So why is New England left out in the cold? WSJ. America is the world’s largest natural-gas producer, but New Englanders’ capacity to stay warm in winter may hinge on the fate of an expensive, 53-year-old import plant that its owner has threatened to shut down. Constellation Energy plans to retire a Massachusetts power plant at the end of May. That will eliminate the biggest user of the liquefied natural gas, or LNG, that is imported through the company’s neighboring Everett Marine Terminal. Constellation said it is trying to line up new gas buyers to keep the terminal running. If it cannot, it will likely close the import facility as well. But New England utilities rely on imported LNG to keep them supplied in winter when demand peaks. Without it, severe cold could leave them, and their customers, in a bind, the utilities have said in public hearings and in letters to regulators. The situation on the Mystic River shows that despite 25 years since the first shale well was fracked in Texas, the benefits of the American drilling boom remain unevenly distributed. Swaths of the country are flooded with cheap gas, and export facilities have cropped up to sell the excess overseas. Other areas, including New England, are bereft of fuel and pay up for energy.
2024 Record U.S. Oil Production. US oil output to touch a record high in 2024, but growth will slow – EIA. Reuters. U.S. crude production will hit records over the next two years but grow at a slower rate, the U.S. Energy Information Administration (EIA) said on Tuesday, as efficiency gains offset a decline in rig activity. The rise in U.S. output comes as the Organization of the Petroleum Exporting Countries and its allies are cutting their own output in a bid to boost oil prices. U.S. crude production will rise by 290,000 barrels per day (bpd) to a record 13.21 million bpd this year, the EIA said in its Short-Term Energy Outlook (STEO).
NatGas $3 for 2024 & 2025. We expect Henry Hub natural gas spot price to average under $3.00/MMBtu in 2024 and 2025. EIA. We expect the U.S. benchmark natural gas spot price at the Henry Hub to average under $3.00 per million British thermal units (MMBtu) in 2024 and 2025 in our January Short-Term Energy Outlook (STEO). The annual average Henry Hub prices in 2024 and 2025 increase from 2023 in our forecast because we expect natural gas demand growth to outpace natural gas supply growth. Despite increased demand, our forecast prices for 2024 and 2025 are less than half the annual average price in 2022 and are only slightly higher than the $2.54/MMBtu we reported for 2023. After averaging just under $6.50/MMBtu in 2022, the Henry Hub price declined to $3.27/MMBtu in January 2023, driven by warmer-than-average weather and reduced natural gas consumption in most of the United States. The Henry Hub price remained relatively low for all of 2023 because of strong natural gas production and more natural gas in storage.
U.S. Oil & NatGas Growth Decelerating. US oil and gas production growth starts to decelerate. Reuters. U.S. oil and gas production continued to climb in October, but there were indications of both starting to flatten and turn down in response to lower prices since the middle of 2022. Oil production from the Lower 48 states excluding Alaska and federal waters in the Gulf of Mexico rose to a record 10.9 million barrels per day (b/d), according to the U.S. Energy Information Administration (EIA). Production had increased by 0.7 million b/d compared with the same month a year earlier, but growth had slowed from 0.9-1.1 million b/d earlier in 2023 (“Petroleum supply monthly”, EIA, December 29).
Permian Shale Producers Expect Moderate Growth. Permian’s private shale explorers expect modest growth, Jefferies says. Bloomberg. Most of shale’s private explorers in the Permian are planning modest growth this year as one of the main engines of US oil expansion downshifts amid volatile commodity prices. A survey of closely held oil explorers showed 69% of Permian firms expect to grow production 5% or less this year, according to Jefferies Financial Group Inc. The same amount expect to maintain or cut their number of drilling rigs this year, the bank said Friday in a note to investors.
Williams CEO “Strong NatGas Growth in 2025.” Thank You, MDN. Alan Armstrong, CEO of pipeline giant Williams, appeared on CNBC’s “Money Movers” TV show yesterday morning. During the interview, Armstrong said there is more demand for U.S. natural gas now, and it is expected to grow more by 2025. “You can see quite a bit of contango in the market with prices picking up by about 25% from 2024 to 2025,” said Armstrong. “So, producers are holding their breath right now through those periods of low prices.” If anyone knows what’s going on in the natural gas market and where things will likely go, it’s Alan Armstrong. The future of his business depends on
Carbon Pollution Down in the U.S. Carbon pollution is down in the U.S., but not fast enough to meet Biden’s 2030 goal, new report says. Associated Press. Climate-altering pollution from greenhouse gases declined by nearly 2 percent in the United States in 2023, even as the economy expanded at a faster clip, a new report finds. The decline, while “a step in the right direction,” is far below the rate needed to meet President Joe Biden’s pledge to cut U.S. emissions in half by 2030, compared to 2005 levels, said a report Wednesday from the Rhodium Group, an independent research firm. “Absent other changes, ″ the U.S. is on track to cut greenhouse gas emissions by about 40 percent below 2005 levels by the end of the decade, said Ben King, associate director at Rhodium and lead author of the study.
PA Pipeline Problem. Pennsylvania pipeline capacity problem persists. Center Square. Pennsylvania’s influence on national and global energy markets has grown in recent decades, but oil and natural gas advocates warn that could change. The American Petroleum Institute’s annual State of American Energy address focused on production, national security, and improving infrastructure. “We produce more energy than any country in the world,” API President and CEO Mike Sommers said. “This benefits our economy, our national security and is our insurance in a volatile time. This is our American energy advantage. It didn’t happen overnight, and it can’t be sustained without the right policies from Washington.”
OH Accepting Bids to Drill in Salt Fork Park. Ohio now accepting bids to drill for gas under Salt Fork State Park, wildlife areas. Cleveland.com. The mineral rights beneath Salt Fork State Park and two state wildlife preservation areas have been formally put out for bid to the oil and gas industry. Following the votes of the Ohio Oil and Gas Land Management Commission, thousands of acres of earth beneath Salt Fork in Guernsey County, plus smaller stretches of Valley Run Wildlife Area in Carroll County and Zepernick Run Wildlife Area in Columbiana County are now at auction.
TX – Martin County Top Oil-Producing County. Martin County leads as top oil-producing county in Texas. Midland Reporter-Telegram. Martin County again was the top oil-producing county in Texas, according to October figures provided by the Railroad Commission. Nine of the top 10 oil-producing counties are in the Permian Basin. Reeves County was the top natural gas-producing county, according to the commission. Seven Permian Basin counties found their way to the top 10. In preliminary figures provided by operators, the commission said statewide production was 114,547,597 barrels, or an average of 3,695,084 barrels per day.
TG Natural Resources Acquires Rockcliff Energy. TG Natural Resources acquires Haynesville natural gas producer Rockcliff Energy for $2.7 billion. WorldOil. Quantum Capital Group completed its previously announced sale of Rockcliff Energy II LLC (“Rockcliff”) to TG Natural Resources LLC (“TGNR”). Rockcliff is a portfolio company of Quantum Energy Partners, Quantum’s private equity division. Rockcliff announced the entry into a definitive agreement with TGNR on Dec. 15., 2023, in which TGNR acquired 100% of the membership interests in Rockcliff for $2.7 billion. Rockcliff is a premier upstream natural gas company focused on developing the East Texas Haynesville shale. With field headquarters in Longview, Texas, the company has a footprint in five Texas counties, operating more than 200,000 net acres with more than 1.3 Bcfd of gross operated natural gas production.
PA Permits December 26, 2023 to January 11, 2024
County Township E&P Companies
1. Armstrong Manor Synder Bros.
2. Armstrong Manor Synder Bros.
3. Armstrong Manor Synder Bros.
4. Armstrong Manor Synder Bros.
5. Armstrong Manor Synder Bros.
OH Permits December 31, 2023 to January 6, 2024
County Township E&P Companies
1. No New Permits
WV Permits January 1, 2024 to January 5, 2024
1. Ohio SWN
2. Wetzel Antero
3. Wetzel Antero
4. Wetzel Antero
5. Wetzel Antero
6. Wetzel Antero
7. Wetzel Antero
8. Wetzel Antero