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Thursday, July 20, 2017

Analyst: Activist Investor Unlikely to Stop EQT-Rice Energy Deal

From Seeking Alpha:
In the finance community, merger arbitrage is sometimes referred to as “a business of picking up nickels in front of a steamroller.” By contrast, the EQT Corporation (EQT)–Rice Energy (RICE) merger arbitrage situation increasingly appears to be an exercise of “picking quarters in front of a scarecrow.” 
Following the stir created by the activist hedge fund JANA Partners, which is advocating against the merger and demanding immediate separation by EQT of its upstream and midstream businesses instead, the arbitrage spread has widened dramatically and is currently at a level that makes expected return on RICE and EQT to the assumed transaction closing materially differential, presenting investors participating in these two stocks with a dilemma. 
Based on July 14 closing prices, a position in the EQT-RICE merger arbitrage pair would earn a ~6% annualized return if the transaction closes in mid-December. By the standards of the merger arbitrage trade where the return is often measured versus zero, this is a very lavish return. The unusually wide spread obviously indicates strong concerns (not to say fear) and disengagement by many arbitrageurs. 
Given the operational merits of the proposed combination and the endorsement by investors so far, a case can be made that in spite of JANA’s activism, the transaction has high likelihood of being approved by EQT shareholders and will likely close as planned.
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Regulators Have More Hoops for ETP to Jump Through Before Progressing with Rover Pipeline

From Reuters:
U.S. energy regulators on Wednesday gave Energy Transfer Partners LP a list of tasks to complete before the Rover natural gas pipeline can enter service. 
The $4.2 billion Rover project from Pennsylvania to Ontario is the biggest gas pipeline under construction in the United States. 
ETP has long said it expects the first phase of Rover to enter service in late July with the second phase by Nov. 1. 
Several energy analysts, however, have said an order by the U.S. Federal Energy Regulatory Commission (FERC) on May 10 banning ETP from new horizontal directional drilling under waterways and roads after a spill in Ohio could cause delays.
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EnerVest Has Financial Problems, But Disputes Report on the Extent of Them

From NGI:
Houston-based EnerVest Ltd., one of the largest privately held onshore exploration operators in the United States, is working with its investors and lenders to recapitalize over-leveraged equity funds and may sell more assets to ensure it is in compliance. However, one of the funds is not about to be taken over by one of the lenders, a spokesman told NGI. 
A story published Monday in The Wall Street Journalsaid a $2 billion fund launched in 2013 was “worth essentially nothing” and had wiped out investments by major pensions, endowments and charitable foundations. 
The fund’s lenders, led by Wells Fargo & Co.,“are negotiating to take control of the fund’s assets to satisfy its debt, according to people familiar with the matter,” the Journalsaid. 
EnerVest spokesman Ron Whitmire, chief administrative officer, said that’s not true. 
“Wells Fargo is not trying to take control of any of EnerVest’s funds to satisfy the debt,” Whitmire said. In simple terms, EnerVest is not broke.
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Upstream Oil Investments Are on the Rise This Year

From MarketWatch:
After two years of significant declines in upstream oil investments, the sector is finally facing a rebound in 2017 and it all comes down to one thing: a sharp jump in money flowing into U.S. shale oil projects. 
The International Energy Agency, in a report out on Tuesday, predicts a 53% upswing in shale investments this year, even as oil prices are struggling to make a sustainable push above $50 a barrel. 
“The largest planned increase in upstream spending in 2017 in percentage terms is in the United States, in particular in shale assets that have benefited from a reduction in breakeven prices as a result of a combination of improvement in costs and efficiency gains,” the IEA said. 
The big rise in U.S. activities is expected to give global upstream — or exploration and production — investments a 6% bump in 2017, following a 44% plunge between 2014 and 2016. Russia and the Middle East are also seen ramping up spending on upstream projects, albeit at a slower pace, as the chart below shows.
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Wednesday, July 19, 2017

Molori Energy Ready to Explode Higher

A novel use of fracking could ramp up production in the conventional North Texas oil wells that Molori Energy holds in a JV with Ponderosa Energy, says Bob Moriarty of 321 Energy.

Energy resource companies are uniquely different than gold and silver resource companies. With energy companies, you either hit and produce oil and gas or you go out of business. With junior resource companies in the gold and silver space, you never want to try to go into production. After all, that's where you fail. You can never fail as long as you keep drilling.

With gold and silver juniors, they want to drill until their projects resemble Swiss cheese, not produce. After all, you might eventually hit something if investors will keep throwing money at you. All the while, management can continue to collect those fat paychecks and issue themselves more options every time their stock hits a new low.

With energy you either produce or die. And a lot of time you die even if you do produce. They all die for exactly the same reason. Oil and gas prices go up and down faster than the blink of an eye. Oil first hit $118 in May of 1980 only to plunge to a low of $17 by November of 1998 before soaring to $156 in June of 2008 only to tumble to $48 by January of 2009, a mere seven months later. Oil then rocketed higher to a high of $123 in April of 2011 before collapsing to a low of $29 in January of 2016.

There is a small but vocal group of people screeching about how gold was suppressed all the way from $252 in August of 1999 to $1923 in September of 2011 before it made its way gently into a low of $1050 in December of 2015. Compared to the price action in oil, gold looks positively boring.
Gold juniors go out of business because investors eventually get tired of funding their bullshit and cut off their allowance. That's why a gold junior can and often does go down 99% even while gold is only going down 40% in a perfectly normal correction.

Oil juniors and sometimes mid-tier and majors collapse because when oil goes to $156, their costs explode higher so at $156 oil they are in hock up to their ears and it might cost $120 a barrel to produce. At $119 a barrel in a common and regular correction, they shutter their doors and have to go find a real job.

Corrections are a common ordinary feature in any commodity but you will never hear that word used by the PermaBulls. You can either take corrections, even harsh corrections into account, and plan for them or alternatively you are the guy collecting unemployment hoping that McDonalds is still taking applications.

If you are a PermaBull writing about resource markets, you simply whine about manipulation when everyone who has ever traded any market knows that all markets are manipulated all of the time.
I got a call a couple of weeks back about from someone I know in the energy business who needed help getting the story out on oil junior with a teeny-tiny market cap but great expectations.

First of all, my readers need to understand that the energy business is the biggest business in the world bar none with about 90 million barrels a day of oil production. At $42 oil, that's $3.78 billion a day in revenue. A DAY!

Oil is big business. Billion dollar oil companies are literally a dime a dozen. A billion dollar gold company on the other hand is really big. A billion dollar oil company is trivial. And there are hundreds of remora fish swimming around the junior energy space just as there are in the junior metals space all hoping to grow up and become sharks.

Molori Energy Inc. (MOL:TSX.V; MOLOF:OTCQB) had a plan that worked pretty well. The company began in 2006 as Taipan Resources and hobbled along until 2012 when the stock got up to $8.50 on a pre-rollback basis. They promptly blew up and sank into oblivion and pennies per share in 2016 before new management stepped in, rolled back the shares and started running it as if it was a real business.

In late 2016 and early 2017 Molori raised money via a couple of private placements with the intention to go into the oil and gas production business. They inked a deal with Ponderosa Energy in early June calling for Molori to get a 25% interest in certain North Texas panhandle oil fields in a partnership with Ponderosa Energy by giving Ponderosa $1 million and 2 million MOL shares.

Ponderosa took advantage of those highly leveraged oil field operators when the price of oil dipped below $30 in early 2016 and picked up some nice production wells that had been poorly maintained and financed. In June Ponderosa hedged their position in those fields by doing the deal with Molori. Ponderosa owns 75% of the partnership, Molori has the remaining 25%.

Tuesday, July 18, 2017

Rover Pipeline Start Up Date Pushed Back as Problems Continue

From NGI:
The initial start-up for Energy Transfer Partners LP's (ETP) Rover Pipeline could be pushed back to "late summer" due to recent regulatory setbacks, the company said Monday. 
ETP/Rover spokeswoman Alexis Daniel told NGI’s Shale Daily that "as a result of our continued efforts to work with" the Federal Energy Regulatory Commission and the Ohio Environmental Protection Agency (Ohio EPA), "we are anticipating that the Phase 1 section has the potential for an in-service date of late summer of 2017. At this time we do not anticipate any delays to the November 2017 in-service date on Phase 2." 
Daniel was responding to a question about last week's letter from FERC Office of Energy Projects Director Terry Turpin, which outlined several clean-up and mitigation activities ETP/Rover would have to complete before receiving in-service authorization.
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Also from another NGI article:
Rover Pipeline LLC and parent Energy Transfer Partners LP violated the Natural Gas Act (NGA) and FERC regulations by not disclosing plans to acquire and demolish an historic home in Ohio that was located near a planned compressor station, Commission staff has alleged. 
The Federal Energy Regulatory Commission's Office of Enforcement issued a notice of alleged violations Thursday stating that it "has preliminarily determined" ETP/Rover failed to satisfy "a forthright obligation" that applicants for FERC certificates "set forth all information necessary to advise the Commission" in evaluating a project application. 
"Staff has preliminarily determined that, between February 2015 and September 2016, Rover did not fully and forthrightly disclose all relevant information to the Commission in its Application for a Certificate of Public Convenience and Necessity and attendant filings" in the project docket [CP15-93], FERC wrote. "Specifically, in the Application and other docketed filings, Rover falsely promised it would avoid adverse effects to a historic resource that it was simultaneously working to purchase and destroy. 
"Rover subsequently made several misstatements in its docketed response to the Commission's questions about why it had purchased and demolished the resource."
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Permitting Up, Rig Count Down on Latest Utica Shale Report

New permits issued last week: 10  (Previous week: 2+8
Total horizontal permits issued: 2551  (Previous week: 2544+7
Total horizontal wells drilled: 2052  (Previous week: 2040+12
Total horizontal wells producing: 1590  (Previous week: 1587+3
Utica rig count: 23  (Previous week: 25)  -2

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Court Rules That Munroe Falls Must Reimburse Beck Energy Legal Fees

A press release received by email from Krugliak, Wilkins, Griffiths, & Dougherty Co., L.P.A.:

Munroe Falls Ordered to Pay Beck Energy’s Attorney’s Fees Over Frivolous Court Case

On July 13, 2017, the Summit County Court of Common Pleas awarded Beck Energy $45,000.00 in attorney’s fees against the City of Munroe Falls (Munroe Falls) for having to defend against a frivolous lawsuit brought by the city. The frivolous Complaint sought (1) a Declaratory Judgment requiring Beck Energy Corporation (Beck Energy) to obtain a zoning certificate prior to the commencement of drilling the Sonoco oil and gas well and (2) a Stay prohibiting Beck Energy from commencing any drilling activities at the Sonoco oil and gas well.

After the filing of the frivolous Complaint, Beck Energy sent a letter demanding that Munroe Falls dismiss the lawsuit on the grounds that it lacked any good faith basis under the Ohio Supreme Court’s decision in Morrison v. Beck Energy Corp., 143 Ohio St.3d 271, 2015-Ohio-485. Beck Energy’s letter pointed out that the conditional zoning certificate mentioned in the frivolous Complaint was the same zoning certificate Munroe Falls previously claimed was required in Morrison. In Morrison, decided on February 17, 2015, the Ohio Supreme Court ruled that the very same zoning certificate that Munroe Falls attempted to require Beck Energy to obtain violated the Home Rule Amendment and the ODNR’s sole and exclusive authority to regulate oil and gas wells per ORC 1509.

Beck Energy warned Munroe Falls that it would seek sanctions for the frivolous Complaint if it wasn’t dismissed. Munroe Falls did not dismiss its frivolous Complaint and on July 14, 2016, the Court granted a converted Motion for Summary Judgment filed by Beck Energy. Thereafter, Beck Energy filed its Motion for Sanctions.

The Court granted Beck Energy’s Motion for Sanctions, awarded $45,000.00 in attorney’s fees and found “the filing of the lawsuit amounted to frivolous conduct” and “was brought for an improper purpose to cause unnecessary delay or needless expense.” In addition, Munroe Falls’s city officials failed to articulate any good faith basis to support their claims.

According to Beck Energy’s Attorney, Scott Zurakowski of Krugliak Wilkins Griffiths & Dougherty Co., L.P.A., “the decision by the Summit County Court of Common Pleas shows that the complaint filed by the City of Munroe Falls never had a good faith basis under Ohio law, and was filed solely to harass and maliciously injure Beck Energy.”

Beck Energy is a small, family operated company owned by Raymond T. Beck employing approximately 20 people in 2 offices in Ravenna and Woodsfield, Ohio. Beck Energy operates more than 300 wells throughout various counties in Ohio, including Monroe, Noble, Washington Stark, Portage and Columbiana Counties.

According to Mr. Zurakowski, “the resources that the city of Munroe Falls used for this duplicative lawsuit would have been put to better use in providing raises and benefits to the city’s municipal employees, including police, fire and safety personnel.”

Founded in 1958, Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A. provides representation across various practice areas of law: Oil, Gas & Mineral Law, Corporate and Business Law, Real Estate and Construction, Labor and Employment, Employee Benefits, Workers’ Compensation, Commercial Lending and Finance, Taxation, Health Care, Environmental Law, OSHA, Trusts and Estates, and Litigation in all areas. The Firm has over 50 attorneys with offices throughout Northeast Ohio, serving Canton, Akron, Alliance, New Philadelphia, and Sugarcreek. For more information visit

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