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Thursday, May 29, 2014

Chesapeake Says Michigan is Ignoring Evidence in Effort to Condemn the Company

From Bloomberg:
Chesapeake Energy Corp. (CHK), the second-biggest U.S. natural-gas producer, said Michigan is cherry picking the company’s internal e-mails to suggest its former chief executive officer invited Canadian rival Encana Corp. (ECA) to join in dividing the state’s oil and gas lease bids. 
The competitors in March were charged by the state with conspiring to divvy up the counties in which each would seek resource exploration rights before a May 2010 auction, driving bid prices down to $40 per acre from $1,510. 
Michigan’s lawyers cited Chesapeake e-mails that included suggestions the two companies “throw in 50/50” on the bids. In a filing yesterday in state court in Cheboygan, the company cited other portions of some of the same e-mails to show the former CEO, Aubrey McClendon, was open to competition. 
McClendon told his staff in a June 25, 2010, message that he was determined to “compete and win” on the leases and that Encana “won’t share,” according to the filing. The e-mail exchanges cited show no deal was ever reached with Encana, Chesapeake said.
You can read the whole article by clicking here.

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Gulfport Energy’s CEO And President Announces New Fund


Cambridge, OH – The Guernsey County Foundation Trustees gathered this morning to celebrate their work and to meet with CEO and President of Gulfport Energy Mike Moore.  Moore joined the Guernsey County Foundation during their breakfast to learn more about the community and build awareness for a new resource, the Gulfport Energy Fund.
Moore, who announced the opening of the new Gulfport Energy office in Saint Clairsville on Wednesday, spoke about the creation of the Gulfport Energy Fund at the Foundation for Appalachian Ohio and shared Gulfport’s long-term outlook on philanthropy and investing in the regions where they do business.
“I was so impressed by the work happening in Guernsey County,” said Moore. “The Trustees leading the Guernsey County Foundation are dedicated to making a difference across the county and that is exactly what we plan to support through the Gulfport Energy Fund. Gulfport looks forward to helping nonprofit, educational, and community leaders by supporting their good work.”
The Gulfport Energy Fund will support projects to enrich quality of life in Ohio counties where Gulfport is active, including Belmont, Guernsey, Harrison, and Monroe counties. More information on the Fund and the grant application process can be found on the Gulfport Energy Fund webpage.
During the meeting, Moore explained that Gulfport believes today’s resources can do a lot for future generations by supporting the efforts of current leaders while growing the philanthropic resources in the region. Moore then presented Cara Dingus Brook, president and CEO of the Foundation for Appalachian Ohio, with a check for $400,000 to support the Foundation for Appalachian Ohio’s work over the next four years and create the Gulfport Energy Fund.
“Guernsey County has shown such foresight and leadership in growing the Guernsey County Foundation,” said Brook. “They have a mission of creating opportunities for generations of Guernsey County citizens and so does the Gulfport Energy Fund. I look forward to seeing what becomes possible with the support of these two resources for the community.”
Maribeth Wright of the Guernsey County Foundation echoed Brook’s thoughts about this new opportunity.
“The Guernsey County Foundation is happy to see another resource for our county in the Gulfport Energy Fund,” said Wright. “With growing philanthropic resources to support our community and the leaders of the many nonprofits and initiatives here, the future is bright.”
Gifts to the Guernsey County Foundation are tax deductible and can be made in many ways, including cash, bequests, and life insurance. To mail your donation, please designate the Guernsey County Foundation and mail to the Foundation for Appalachian Ohio, PO Box 456, Nelsonville, OH 45764. Gifts can also be made online by selecting the Guernsey County Foundation when donating.

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BP's Departure From Trumbull County is a Loss for Many

From Shale Play:
Canfield-based Pecchia Communications had been supporting BP America through their public relations as the company explored the possibility of oil and gas development in the Mahoning Valley. 
"BP will be missed," said Dan Pecchia, president of Pecchia Communications. 
"The local and Houston leaders seemed genuine about doing all the right things here. They honored their commitments to landowners and seemed deeply interested in what local people thought of the company. 
"They freed up sizable sums for local donations, and also sought out the best beneficiaries for those donations," Pecchia said. 
Along with BP's departure will be a loss of a corporate partner that invested $100,000 in a STEM (science, technology, engineering and mathematics) program for Trumbull County students and provided smoke detectors through the fire chief's association.
Read the whole article here.

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Utica Shale Report From Chesapeake Energy is Delayed

From Shale Play:
During Chesapeake Energy's first quarter earnings call, Chris Doyle, senior vice president of operations for the northern division, said the company will provide more detailed information regarding its Utica Shale play operations soon 
Chesapeake is the largest oil and gas leaseholder in Ohio and has many leases in Columbiana County. 
There are 102 oil and gas horizontal drilling permits in Columbiana County, and there are 43 drilled wells with 22 of those producing.
Read the whole article here.

This news comes after multiple Utica shale drillers have announced that their expectations for production from the Utica shale are lower than previously stated for 2014.

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Utica Shale Academy Accepting Applications

From WTOV:
With the oil and gas boom in the area -- and no real formal training offered to prepare workers for the industry -- a new school, the Utica Shale Academy, will give students the tools they need to enter the workforce.

There students learn the growing industry and founders hope it will keep young graduates in the area. Open to any student in grades 9-12 in the state of Ohio, the academy serves a vocational school role. Students will graduate with one of two certificates -- a rig pass or a safety certificate in well management. Once completed, they will be able to step directly on the well pad and begin working. 
"We started with certificate and job ready right out of high school," Dr. Chuck Kokiko of Jefferson County Education Service said. "We also have a strong program for those that want to get an associate's degree in an oil or gas-related field. And also we're exploring options for those kids who may want to be in a petroleum project or four-year degree program."

Click here to read the whole article.

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Latest Report Shows Utica Shale Back Below 400 Producing Wells

After last week's permitting update from the Ohio Department of Natural Resources showed over 400 wells producing in Ohio's Utica shale, this week's has the number back down to 399.

There were 19 new permits issued last week.  Noble County was the hot spot, with 8 of those permits (all to Antero Resources).  There were 4 new permits issued for Guernsey County, 2 each for Carroll, Belmont, and Monroe counties, and 1 permit for Harrison County.

The cumulative total for permits issued now stands at 1,283, with 869 wells drilled.  The Utica rig count is 43.

Click here to view the entire report.

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Wednesday, May 28, 2014

Surfing the Volatility Curve with Jason Wangler

Source: Peter Byrne of The Energy Report (5/22/14)
http://www.theenergyreport.com/pub/na/surfing-the-volatility-curve-with-jason-wangler
There is money to be made as oil and gas prices fluctuate. Wunderlich Securities' Analyst Jason Wangler is no Pollyanna—he casts a cold, analytical eye on the volatility of the energy markets. In this interview with The Energy Report, Jason explains how to create a solid portfolio of attractive North American juniors—with lucrative side trips to South America and Africa.
The Energy Report: Jason, you focus on the growth of junior oil and gas companies and the expansion of wells in the Midwest and Southwest of the U.S. What is the macroeconomic view of this sector so far this year?
Jason Wangler: Energy is doing well. Oil and natural gas production is robust. The Bakken in North Dakota, the Niobrara in Colorado, and the Permian and Eagle Ford in Texas are all showing great results. Booming oil and gas production numbers are translating into solid earnings, cash flows and revenues for the juniors.
TER: Is the price volatility of the past few years leveling out?
JW: Oil and gas prices are driven predominantly by global economics. A couple of years ago, oil prices quickly dropped from $130–140 per barrel ($130–140/bbl) to $30/bbl. The price has now stabilized in the $90–100/bbl range. Energy markets are delicate from the supply and demand standpoint, but as long as there is not a significant downturn in the global economy, a series of significant drivers show that oil will remain in the $80+/bbl range, with less volatility.
TER: What are the drivers?
JW: On the supply side, growth in the U.S. is fantastic, but we remain a net importer of oil. We consume 10–11 million barrels per day (10–11 MMb/d) and we produce 6–7 MMb/d. That means that we import 3–5 MMb/d. We are playing catch-up with ourselves, so to speak, while the rest of the world is also looking for more oil and gas resources. Output by the Organization of the Petroleum Exporting Countries (OPEC), except for Iraq, is not growing as much as people had expected. And Russia could throw a monkey wrench in the market given the Ukraine situation. That said, demand generally tracks the growth of the world economy, and supply growth tracks demand/prices of the commodity.
TER: In your last interview with The Energy Report, you spoke positively about Triangle Petroleum Corporation (TPO:TSX.V; TPLM:NYSE.MKT). What's the latest with that Denver-based firm?
JW: Triangle is doing a great job of building out its plans. Its focus is in the Williston Basin, the Bakken and the Three Forks area in North Dakota. It has boosted its production into the 10 thousand barrel a day (10 Mb/d) range. In addition to its exploration and production (E&P) business, it runs two other businesses that drive its revenue. One is a completion services company that can frack Triangle's own wells, as well as third parties' wells in the region. It owns a lot of pipeline infrastructure in the Bakken. The oil infrastructure in North Dakota is still very much in its infancy. Producers are using rail and trucks to move oil out of the basin. With its pipelines, Triangle is fairly self-sufficient. It really is a portfolio of energy companies, and all of its businesses are firing on all cylinders.
TER: Does that split management's focus?
JW: Triangle is predominantly focused on the E&P business—the actual exploration and production of its acreage. It has a CEO who separately runs RockPile Energy Services, the services company of which Triangle owns 100%. It also owns 40% of Caliber Midstream, which is the midstream portion. The other 60% of Caliber is owned by a private equity firm. There is not as much managerial work to be done there.
TER: How do its financial fundamentals hold up?
JW: Triangle's share price has done well of late. The winter months this year in North Dakota were very tough. But Triangle reported a solid quarter despite the weather issues. Its debt/cap ratio is in the 20–25% range, which is a bit below a typical E&P company's ratio. It will probably run up more debt as the company expands, but it is in a good position to grow without an equity raise.
TER: Do you have any other picks in the Bakken?
JW: In the Williston, which is a pure play, we likeWhiting Petroleum (WLL:NYSE). It has done a tremendous job of maximizing returns by reducing completion costs.
Halcón Resources Corp. (HK:NASDAQ) has a nice Bakken position. It is moving down the tracks with impressive completion techniques that are generating 30–40% increases on the initial production rates. This property is Halcón's cash cow asset going forward. It is also in the Tuscaloosa Marine Shale in Louisiana and Mississippi, along with Goodrich Petroleum Corp. (GDP:NYSE). We are starting to see some interesting wells come in there. And in East Texas it is in the northern offshoot of the Eagle Ford.
Floyd Wilson is now Halcón's CEO. He had tremendous success with his sale of Petrohawk Energy Corp., which was in the Eagle Ford. Wilson and his team have a lot of experience in the region and are starting to show good results in fields near Houston, as opposed to the fields around San Antonio, where the Eagle Ford started.
TER: What other plays are you following in Texas?
JW: The Permian in West Texas is the most profitable play in the U.S. The horizontal movement in the Permian has been very aggressive lately, and it is creating great value. The Permian has always had strong vertical well oil production, and now the horizontal wells can target individual zones. Firms can drill three, four, or five wells on the same swath of acreage in the different zones, effectively making five or six plays on top of each other. The pricing for the profitable acreage is going through the roof.
Diamondback Energy Inc. (FANG:NASDAQ) is enjoying a good run in the Permian. It has only been public for a couple of years, but its stock price has quadrupled. Pioneer Natural Resources Co. (PXD:NYSE) is the large player in the Permian game, but Diamondback is just as active and it controls a very nice chunk of Permian acreage.
Resolute Energy (REN:NYSE) bought into the Permian near Diamondback, and also has property in the Delaware Basin near EOG Resources Inc. (EOG:NYSE). Resolute has a tremendous asset package. As we speak, it is selling some of its assets and looking to retool its balance sheet so it can expand its activities in the Permian—because the results there have been great.
TER: Do you have any picks in the oilfield service sector in North America?
JW: The services market is very tough because natural gas prices are depressed, to say the least. Services companies are struggling to keep their footing. The E&P companies have had the upper hand for a while, but that is starting to even out, which will benefit the service firms. Demand for best-in-class, high-specification rigs continues to increase.
Pioneer Energy Services Corp. (PDC:NYSE) has state of the art equipment. Its utilization rate is 90%, versus the rate of 70% for older equipment in the services space. It is in the process of building more drilling rigs.
On the compressor side of the business, Natural Gas Services Group Inc. (NGS:NYSE) and Tetra Technologies Inc. (TTI:NYSE) have nice inventories. When gas prices bounce back, there will be more demand for compression, because producers will need to maximize production.
TER: Do service firm stock prices track the price movements of explorers and developers?
JW: They are all tied together in the long-term perspective. In the short term, the service names are experiencing a tougher business environment than the E&Ps. Both spaces are predicated on energy prices. If oil and gas do well, the E&P companies will spend money drilling, and that means contracting with the oilfield services companies. Overall, the share prices of production and services firms move in tandem over extended periods.
TER: We spoke previously about Harvest Natural Resources' (HNR:NYSE) plays in Venezuela and Gabon? How are those operations developing?
JW: Harvest shareholders just voted to monetize its Venezuelan assets. The only thing left on the table for that deal is to get Venezuela itself to approve the sale. We think that will certainly happen. The buyer, Pluspetrol, has about 1 billion barrels (1 Bbl) in reserves. It is a South American company, so there is a cultural fit. Harvest will exit Venezuela with nice chunk of change, about $220M net, or $5/share on a $4.50 current stock price. Harvest is now talking about monetizing its sizeable position in Gabon. It does not have anymore debt, so the balance sheet is robust. And it does not have any properties outside of Gabon to spend the Venezuelan cash on. It could sell Gabon and spin off the cash to investors, or it could develop Gabon entirely on its own with the new money. It could also initiate a dividend, or buy back some shares.
TER: What's the nature of the asset in Gabon?
JW: It is a large offshore block. Harvest has four discoveries in the shallow waters off Gabon with significant proven resources that it could develop in the near term. It could have production going within 12–18 months on these four prospects. It also has a lot of deep water prospectivity in the region. Total S.A. (TOT:NYSE) drilled a well in the deep water nearby and has announced interesting results. Harvest's offshore asset could be as massive as Angola's bonanza.
TER: What other companies are successfully surfing the supply and demand curve?
JW: Gulfport Energy Corp. (GPOR:NASDAQ) is on a tremendous run. Its Utica position is one of the best assets in the country. Its production this year is growing by 200%+, which is unheard of from an organic perspective—and it did it with cash flow!
Bill Barrett Corporation (BBG:NYSE) is a Niobrara player with a really great asset in Colorado. As good results continue to emerge, people will flock to that name. Barrett has done a great job of turning the Colorado story around in the last 18 months. The Colorado property was a natural gas exploration play. With natural gas falling out of bed for five straight years, Barrett's debt level rose. It was still attacking natural gas, and this strategy was not going very well. There was a managerial change at the beginning of 2013, and the firm's focus has shifted toward oil development. It sold assets to improve the balance sheet. It brought the debt level back under $1B, to a 40–45% debt/cap ratio, when it had been in the 60% range. The new executives brought the asset portfolio down to a manageable level. Each property is a core asset.
TER: Thank you for your time today, Jason.
JW: Thank you, Peter.
Jason Wangler has over five years of equity research experience focused on the exploration and production and oilfield services sectors of the energy space. Jason previously worked at SunTrust Robinson Humphrey and Dahlman Rose & Company before moving to Wunderlich Securities. He also previously worked at Netherland, Sewell & Associates, Inc. as a petroleum analyst. He received his Masters in Business Administration from the University of Houston where he was also named the 2007 Finance Student of the Year. He received his Bachelor of Science degree in Business Administration with a focus on Finance from the University of Nevada where he was named the 2003 Silver Scholar award winner for the College of Business Administration. In 2010 he was highlighted as a "Best on the Street" analyst by The Wall St reet Journal and has been a guest on CNBC.
Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.
DISCLOSURE:
1) Peter Byrne conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: none.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services.
3) Jason Wangler: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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Tuesday, May 27, 2014

Ohio Injected Drilling Waste Increased by 15% in 2013

From the Akron Beacon Journal:
The volume of drilling wastes injected in Ohio grew by nearly 15 percent last year, almost entirely due to increasing in-state Utica shale production. 
Data compiled from the Ohio Department of Natural Resources show that Ohio accepted more than 16.3 million barrels of liquid waste in 2013 — enough to fill a train of tanker cars nearly 242 miles long. 
Waste volume from out-of-state drilling sources remained basically the same from 2012 to 2013. The sharp change came from in-state, as liquids produced in Ohio grew from 5.9 million barrels to nearly 8.1 million barrels, an increase of 36.7 percent. 
Trumbull County was the No. 1 destination for the liquid waste in 2013, with more than 2.3 million barrels pumped into underground storage there. Portage County ranked second at almost 2 million barrels. Stark County was ninth with 607,698 barrels. 
“Those numbers are not surprising and seem reasonable based on what’s been happening,” in the drilling industry, said Jeffrey Dick, a geology professor at Youngstown State University and an expert on Ohio’s Utica shale.
Read the entire article here.

Here is a map from the Ohio Department of Natural Resources showing the locations of active injection wells:




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Processing Complex in Harrison County Continues to Expand

From the Akron Beacon Journal:
The Beast is getting bigger. 
The Beast is the term that Texas-based Momentum Midstream spokesman Eric Mize lovingly uses to describe the new and growing liquids-separating complex in northern Harrison County. 
He also refers to the sprawling facility as the Big Boy. "It is a big plant, a very big plant and far bigger than other plants around here.…What’s really amazing that we got it up and running in six months. No one believed that we could do that." 
The facility, part of $1.6 billion three-plant processing complex, sits at the edge of tiny Scio with its 760 residents and one traffic signal. 
The so-called fractionation plant is designed to separate the natural gas liquids that come from Ohio’s Utica shale, store it and ship it. The plant is a mile long and half mile wide. 
The Scio plant processes 90,000 barrels a day today and that volume will soon be growing again.
Read the rest of this article by clicking here.

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Aubrey McClendon Stays Busy, Has Now Raised $8.5 Billion

From Unconventional Gas:
In the past nine months, McClendon had raised a breathtaking $8.5 billion of institutional capital, started five companies and acquired production of 25,000 barrels of oil equivalent per day on 600,000 net acres. The parent company has grown to 325 from 16 employees, with about 30 new people joining every month. 
McClendon is also forming a company that will allow investments by third-party broker dealer networks called American Energy Capital Partners LP, with $2-$3 billion capital raised.  
Asked by Hart Energy if his high-profile status has opened doors to his raising capital, McClendon drew laughs by saying that during his time with Chesapeake he was caught in a “journalist drive-by shooting. My problem was I was in a cul-de-sac.” 
Ultimately, he said his backers are people who “respected what I tried to stand up for and build over the last 30 years. It’s a lot of fun to be back out there.”
You can read the entire article by clicking here.

Did Chesapeake Energy make a mistake by parting ways with McClendon?

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Citizens Oppose Plan for Recycling of Drilling Materials

From Shale Play:
Village officials in Barnesville on Monday set the record straight regarding a proposed plan to allow the East Ohio Regional Industrial Park on Ohio 800 to accept gas drilling waste products. 
Barnesville Village Council hosted a town meeting Monday night regarding the project, which has been approved by the Belmont County Port Authority Board of Trustees, which oversees the park. 
However, public opposition built when residents thought fracking waste would be dumped there. Council called the meeting to present facts about the project and dispel misinformation. A company from Columbus, EnerGreen360 has developed a technique to clean and solidify top hole drill cuttings from gas wells. 
There is no fracking waste involved; the material is the dirt from the drilling process, which may have trace amounts of refined oil-based substances only from the drill bit.
Read the whole article by clicking here.

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Thursday, May 22, 2014

Lobbyist Gushes Over Shale Benefits at Columbiana County Event

Tom Stewart
From The Morning Journal:
With 80,000 hydraulic fracturing wells in Ohio, Tom Stewart, a lobbyist for the oil and gas industry talked about the Utica shale currently being drilled in Columbiana County and the history of oil and gas production throughout the state. 
Stewart, the executive vice president of the Ohio Oil and Gas Association, said his grandfather was in the oil production business. He talked about production from the 1880s forward and the difference hydraulic fracturing, also known as fracking, has meant to the latest boom in Ohio. 
"Nowhere in the world is there more sophisticated drilling equipment than in Appalachia," Stewart said, "except when you are looking at offshore drilling." 
After the second Ohio boom in 1950s, it became apparent there needed to be oil and gas drilling regulations in Ohio, Stewart said. Drilling fields were placed right next to each other, poorly utilizing resources.
Click here to read the rest of this article. 

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Ohio's Utica Shale Now Has Over 400 Wells Producing

The latest weekly permitting report from the Ohio Department of Natural Resources reveals that the state has passed another milestone in Utica shale production.

In total, 20 new permits were issued for the week of May 11 to May 17.  Noble County took center stage, with 9 of the 20 permitted wells located there (4 for CNX Gas Company and 5 for Antero Resources).  5 permits were issued to Aubrey McClendon's American Energy Utica for Harrison County wells, 4 were issued for Chesapeake Energy wells in Carroll County, and Belmont County rounds out the report with 2 permits to Gulfport Energy.

There are now 1,272 permits for horizontal drilling in the Ohio Utica shale.  865 wells have been drilled, and the number of wells producing has crossed over the 400 mark, hitting 401.  The Utica rig count is 44.

Click here to view the report.

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Wednesday, May 21, 2014

Chesapeake Surprising Some With Strong Projections For Utica Shale

Some are surprised that Chesapeake sees
the Utica shale as a big growth driver
From Fuel Fix:
Just a month after BP decided to take a $521 million hit to abandon its plans for the Utica Shale, Chesapeake Energy last week called the region its “newest world-class asset.” 
It was the second surprising determination that Chesapeake executives made this year on where the company could find its biggest future growth drivers. The first out-of-the-blue call came in February, when the Oklahoma City-based oil and gas producer told investors it would march back into the gas-rich Haynesville Shale in northwestern Louisiana, East Texas and southwestern Arkansas
The Utica, an Ohio shale play that operators originally believed would yield large bounties of pure oil, turned out to have much bigger deposits of natural gas and natural gas liquids. Chesapeake and others “whiffed” on the Utica a few years ago, but now the company believes it’s going to be “a big growth driver,” said Jason Wangler, an analyst with Wunderlich Securities in Houston. 
Chesapeake officials said Friday they believe the Utica holds more than 4 billion barrels of recoverable resources, and that the play will deliver 45-percent returns this year. After ramping up to seven to nine operated rigs, the company is aiming to boost its production in the region to almost 10 times its level two years ago. It’s a switch that could bring on a lot more natural gas production for Chesapeake.
Read the entire article by clicking here.

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Merriam-Webster Settles Fracking vs Fracing Debate

From Columbus Business First:
When I first started at Columbus Business First, a few oil and gas lawyers and engineers gave me grief because of how I spelled the shorthand term for “hydraulic fracturing,” the drilling process where underground rocks are fractured to help extract oil and natural gas. Within the industry, it’s always been spelled “fracing” or sometimes “fraccing.”
I’ve been told the media, of which many of you remain suspicious, uses the term “fracking” like a pejorative, much like activists do, and spell it their way too.
The Associated Press Stylebook, which most journalists stick to as part dictionary/part encyclopedia, early on declared “fracking” was right, but I’d still get complaints from industry folks. One attorney emailed me in January with the subject line “Misspelling of Fracing,” and suggested I call oil heavyweights Halliburton, Weatherford and Schlumberger. “They will tell you the correct spelling of FRACING. Take it from companies that are professionals in the area of fracing.”
Click right here to read the rest of the article.

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Monday, May 19, 2014

Quick Links for 5/19/14: Howarth Attacks Natural Gas Again, Chesapeake Still Likes Utica Shale, and More

Wiley Online Library:  A bridge to nowhere: methane emissions and the greenhouse gas footprint of natural gas   -   "In April 2011, we published the first peer-reviewed analysis of the greenhouse gas footprint (GHG) of shale gas, concluding that the climate impact of shale gas may be worse than that of other fossil fuels such as coal and oil because of methane emissions. We noted the poor quality of publicly available data to support our analysis and called..."

Akron Beacon Journal:  Chesapeake Energy says it likes Ohio’s still-developing Utica shale   -   "Oklahoma-based Chesapeake Energy Corp. really likes Ohio’s Utica shale.  That message was repeated several times by vice president Chris Doyle at the company’s Analyst Day 2014 on Friday in Oklahoma City.  Analysts may have had a difficult time gauging the Utica shale because of the lack of data and production delays, and Chesapeake has said little..."

Bloomberg:  Chesapeake E-Mail Cited by Michigan in Lease-Bidding Case   -   "Chesapeake Energy Corp.’s former chief executive officer invited Encana Corp. (ECA) to join in dividing Michigan oil and gas lease bidding opportunities in 2010 “rather than bash each other’s brains out,” according to an e-mail cited by the state in a court filing.  Chesapeake and Encana were accused by the state of..."

Press release:  Chesapeake Energy Corporation Provides Update on 2014 Asset Sales and Projected Impact on 2014 Outlook   -   "Chesapeake Energy Corporation (NYSE:CHK) today updated its currently anticipated 2014 asset sales and divestitures and the projected impact of such transactions on its 2014 Outlook. The company also introduced preliminary estimated ranges for its 2015 adjusted production growth and total capital expenditures. These items will be discussed in more detail at..."

WBNS News:  Eastern Ohio City Getting New Life With New Money From Fracking   -

The Columbus Dispatch:  Measures to contain Morgan County shale-drilling spill fell short   -   "When workers drilling a shale well in Morgan County hit a pocket of natural gas on Sunday, at least two safety measures failed to keep a slurry of gas and chemicals from spilling out.  First, a blowout preventer — similar to the one that failed in the 2010 Gulf of Mexico oil spill — didn’t stop thousands of gallons of..."

The Independent:  50,000 gallons of oil spills onto street in Los Angeles after pipe ruptures   -   "Firefighters in Los Angeles have reported that around 50,000 gallons of crude oil has been spilled onto streets over a half mile radius after an oil pipe..."

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Saturday, May 17, 2014

Chesapeake Continues Fire Sale of Assets

From a Chesapeake Energy press release:
Chesapeake Energy Corporation (NYSE:CHK) today updated its currently anticipated 2014 asset sales and divestitures and the projected impact of such transactions on its 2014 Outlook. The company also introduced preliminary estimated ranges for its 2015 adjusted production growth and total capital expenditures. These items will be discussed in more detail at the company's 2014 Analyst Day event, to be held in Oklahoma City this morning. 
Chesapeake continues to divest of noncore assets in order to focus its resources on its highest rate of return opportunities and reduce balance sheet leverage and complexity. The company currently anticipates the following transactions will be completed during the 2nd and 3rd quarters of 2014. 
Chesapeake to Proceed with the Spin-off of its Oilfield Services Business 
Chesapeake previously announced on February 24, 2014, that it is pursuing strategic alternatives for its oilfield services business, which is currently conducted through its wholly owned subsidiary Chesapeake Oilfield Operating, L.L.C. (COO). Chesapeake announced today, after completing its review of strategic alternatives, that it intends to proceed with a spin-off of COO to Chesapeake's shareholders. COO has filed a Registration Statement on Form 10 with the SEC and expects to update it in the coming weeks. Chesapeake intends for the potential spin-off to be tax-free to its shareholders for U.S. federal income tax purposes and, to that end, has obtained a private letter ruling from the Internal Revenue Service. 
Upon completion of the spin-off, and an expected recapitalization, approximately $1.1 billion of consolidated COO debt will be eliminated from Chesapeake’s balance sheet and Chesapeake will receive an approximate $400 million dividend that will be applied to pay off intercompany debt from the oilfield services business. COO will also convert into a corporation and change its name to Seventy Seven Energy Inc. Chesapeake anticipates that the spin-off and recapitalization transactions will be completed by June 30, 2014. 
Chesapeake to Divest Ownership of CHK Cleveland Tonkawa, L.L.C. 
Chesapeake has entered into a non-binding letter agreement with the preferred members of CHK Cleveland Tonkawa, L.L.C. (CHKCT), a Chesapeake subsidiary, for a proposed transfer of Chesapeake's common shares in CHKCT to the preferred members and the termination of the existing agreements between Chesapeake and CHKCT. The agreement contemplates that Chesapeake would transfer operatorship of the CHKCT properties, but would provide certain transition services to the new owner group. The proposed transaction, which is expected to close in the third quarter of 2014, would favorably impact Chesapeake’s balance sheet by eliminating approximately $1.0 billion of equity attributable to third parties (in the form of a non-controlling interest) and $160 million of balance sheet liabilities for future overriding royalty interest obligations, partially offset by the reduction in restricted cash held by the CHKCT entity. 
Chesapeake's Chief Executive Officer Doug Lawler commented, "Exiting our CHKCT preferred equity arrangement will reduce Chesapeake's balance sheet complexity and future commitments. The CHKCT assets will provide more strategic value to other entities and we feel this is an opportune time to complete this transaction for all parties." 
Chesapeake Announces Additional Noncore Asset Sales 
The company has agreed to sell, subject to execution of mutually acceptable purchase and sale agreements, noncore producing assets in Southwestern Oklahoma, East Texas and South Texas. The East Texas and South Texas assets have associated volumetric production payments (VPP #5 and #6, respectively) that will transfer to the buyer upon closing. 
Chesapeake expects to receive approximately $310 million in cash proceeds combined for these three asset sales. 
Additionally, the company has reached an agreement to sell, subject to the execution of a mutually acceptable purchase and sale agreement, a noncore acreage package with minimal associated production in southwest Pennsylvania. Chesapeake has also entered into a purchase and sale agreement to divest a portion of its noncore acreage position in the Powder River Basin in Wyoming. Proceeds from these transactions are anticipated to be approximately $290 million. 
Combined with the more than $925 million of asset sale proceeds received year to date as of May 7, the transactions listed above, if completed, would bring total value of sales and divestitures in 2014 to more than $4 billion. 
Lawler noted, "We expect that the transactions we are announcing today will result in a net leverage reduction to Chesapeake of nearly $3.0 billion, while only reducing our 2014 production by 2% and our operating cash flow by $250 million. Further, these transactions would reduce Chesapeake's 2014 interest expense and dividend payments by approximately $70 million and eliminate $200 million of projected capital expenditures for the remainder of 2014." 
A revised 2014 Outlook is attached to this release and provides additional detail regarding the financial impact of these proposed transactions. 
Chesapeake Provides Preliminary Estimate Ranges for 2015 Adjusted Production Growth and Capital Expenditures; Establishes Five Year Annual Production Growth Target 
Chesapeake estimates that 2015 production will grow 7-10% compared to its 2014 adjusted production, which reflects the anticipated impact of the asset sales detailed above. The company believes that it can deliver this production growth rate in 2015 with a total capital expenditure budget (including capitalized interest) of $5.5 to $6.0 billion. Chesapeake has also established a five year annual production growth target of 7-9%.

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Why Are Some Environmentalists Not Keeping Up the Fight Against Natural Gas?

From Energy in Depth:
For many years, environmental activists have pushed for bans, moratoria, or other restrictions on hydraulic fracturing (“fracking”), alleging the process is a threat to public health and the environment. But in recent months, increasing numbers of environmentalists have distanced themselves from the “ban fracking” agenda. Many have even embraced shale gas on environmental grounds, revealing how extreme and marginalized the campaign to restrict hydraulic fracturing has become. 
“Environmentalists who oppose the development of shale gas and fracking are making a tragic mistake,” wrote Richard Muller last year. Muller, a physicist and climate expert at the University of California-Berkeley, was viciously attacked by activist groups like Greenpeace, but Muller’s position may actually be more in line with a growing public understanding of the environmental benefits of shale gas. 
In April, the Environmental Protection Agency released data showing U.S. greenhouse gas emissions had fallen 10 percent since 2005, attributable in large part to increased use of natural gas. Hydraulic fracturing and horizontal drilling have unlocked a 100-year supply of natural gas, making the fuel more affordable for power generation and household energy use. 
“Responsible development of natural gas is an important part of our work to curb climate change,” said U.S. EPA administrator Gina McCarthy last August. McCarthy also said natural gas has been a “game changer with our ability to really move forward with pollution reductions that have been very hard to get our arms around for many decades.”
Read the entire article by clicking here. 

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Friday, May 16, 2014

Ohio House Says Yes to Severance Tax; OOGA Urges Senate to Follow Suit

From The Columbus Dispatch:
A fracking-tax bill that supporters say will provide long-term clarity for companies coming to Ohio to drill in the state’s shale regions passed a divided Ohio House yesterday. 
The bill sets a new 2.5 percent severance tax on shale fracking, a rate Democrats decried as a giveaway to the oil and gas industry, and as an overall tax shift because much of the revenue will go for an annual income-tax cut that, they argue, favors the wealthy. 
“We think it’s OK to be fooled by the oil and gas industry,” said Rep. Robert F. Hagan, D-Youngstown. “Why are we so afraid to make them pay their fair share?” 
But as the fracking industry tries to emerge in Ohio, Speaker William G. Batchelder, R-Medina, said the state doesn’t want to do anything to chase away companies.
Read more here.

Further on this story, there is this from the Ohio Oil and Gas Association:
From Thomas E. Stewart, executive vice president of the Ohio Oil and Gas Association:

Today’s approval of House Bill 375 demonstrates that compromise remains an important part of the legislative process. We appreciate the efforts of the bill’s sponsors and managers for tackling a difficult issue and bringing all parties together to reach reasonable solutions.

While we have concerns about aspects of the bill, which will increase the severance tax to 2.5 percent, we remain supportive of the legislation and urge swift approval by the Ohio Senate.

The ultimate passage of HB 375 will provide oil and gas producers the necessary clarity and certainty to continue investing billions into developing the state’s Utica Shale for the benefit of all Ohioans.

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Thursday, May 15, 2014

Gulfport Energy Takes a Tumble Following Quarterly Report

From The Motley Fool:
On Thursday shares of Gulfport Energy (NASDAQ: GPOR  , one of the biggest exploration and production companies in the Utica Shale of eastern Ohio, dropped by a whopping 18% in the wake of the company's quarterly results. In short, shares dropped due to new guidance issued by management. Gulfport significantly reduced its own 2014 production guidance and announced a new strategy going forward. This article will look at Gulfport's change in strategy and it will also look at Gulfport's new valuation in light of Thursday's steep drop. 
Fallout 
There are actually several reasons for Gulfport's drop on Thursday. However, the biggest reason is, by far, revised guidance: Management now expects to produce somewhere between 37,000-42,000 barrels of oil equivalent per day, revised downward from 50,000-60,000.The rationale for this revision is that Gulfport has decided to go from a production-maximizing strategy to a value-maximizing one. In other words, Gulfport will take its time, establish best practices, experiment with well downspacing, and properly inventory its drilling opportunities.  
Many analysts were rightly skeptical of this. One outright asked why they should believe management's estimates if management couldn't uphold its earlier promises. In fact, Gulfport was, in a sense, the last domino to fall. In the recent few months, operators such as PDC Energy Inc (NASDAQ: PDCE  and Antero Resources Corp (NYSE: AR  either issued conservative type curves or revised those type curves lower as capacity constraints and production data have dictated. Which is probably why analysts didn't appear to wholly buy management's "change of strategy" explanation. 
You can read more here.

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399 Utica Shale Wells Now Producing in Ohio as Latest Permitting Update is Released

The latest weekly permitting report from the Ohio Department of Natural Resources reveals that Ohio's Utica shale is closer to another milestone number.

19 new permits were issued last week.  Both Guernsey and Harrison counties saw 5 new permits issued, with 7 of those 10 permits going to Aubrey McClendon's American Energy Utica.  Chesapeake Energy was issued 3 more permits in Carroll County, while Antero Resources received 3 new permits in Monroe County.  Belmont, Columbiana, and Jefferson counties finished off the report with 1 permit each.

There have now been 1,262 horizontal drilling permits issued in Ohio's Utica shale.  849 wells are drilled, and 399 are producing.  The Utica rig count is 39.

View the report here.

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Tuesday, May 13, 2014

Links for 5/13/14: Chesapeake Returning to Dry Gas, Voters Reject Fracking Ban, and More

Energy in Depth:  GAO Report a Testament to States’ Effective Regulation of Oil and Gas   -   "This week, the U.S. Government Accountability Office (GAO) released a new report, which states that the Bureau of Land Management’s (BLM) regulation of oil and gas development leaves room for..."

Akron Beacon Journal:  Chesapeake Energy plans to begin exploring natural-gas-only areas in eastern Ohio   -   "Chesapeake Energy Corp. will soon begin exploring its natural-gas-only areas in eastern Ohio.  The company is “excited about some of the tests that we’ve seen” on the dry-gas areas, spokesman Chris Doyle said Wednesday in a teleconference/earnings call with analysts on..."

Youngstown Vindicator:  Youngstown voters reject fracking ban in city for the 3rd time - "With city voters rejecting a citizen-initiative charter amendment to ban fracking in the city for the third time in a year, supporters of the Community Bill of Rights say it will be back for a fourth time and..."

Cleveland.com:  Ohio lawmakers move ahead with 'compromise' severance tax proposal, but many uncertainties remain   -   "After weeks of behind-the-scenes discussions, an Ohio legislative committee on Wednesday agreed to seek a higher proposed tax rate on fracking activity in the state than what lawmakers..."

Press release:  Magnum Hunter Resources Announces Increase in Borrowing Base Under Revolving Credit Facility   -   "Magnum Hunter Resources Corporation (NYSE: MHR) (NYSE MKT: MHR.PRC) (NYSE MKT: MHR.PRD) (NYSE MKT: MHR.PRE) (the "Company" or "Magnum Hunter") announced today that the lenders under its Senior Revolving Credit Facility ("Credit Facility") completed their regular semi-annual redetermination of the Company's borrowing base..."

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