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Friday, January 30, 2015

Landowners Ask County to Help in Fight to Reroute NEXUS Pipeline

From the Chronicle-Telegram:
A group of Lorain County landowners whose properties will be affected by the proposed NEXUS pipeline on Wednesday asked the county commissioners to back their efforts to reroute the natural gas pipeline. 
“The pipeline is a bad idea in so many ways,” said Richard Baumgartner, a Westlake resident who owns property in Grafton Township. 
He said the safe distance from structures should be close to 1,000 meters, but the pipeline’s route will be far closer to homes and businesses. 
The danger of an explosion, Baumgartner said, is small but would be catastrophic if it were to happen. He said the explosion of a 30-inch pipeline a few years ago killed several people, took 10 hours to extinguish and required a massive outpouring of firefighting resources to bring under control. 
“The result of a 42-inch gas pipeline explosion would be horrific,” Baumgartner said.
The property owners said they would prefer an energy corridor for the pipeline that puts it a safer distance from homes and other buildings.
The rest of this article can be read by clicking here.

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Michael Waring Has Seen the Energy Downturn Movie Before, and He's Not Worried

Source: Tom Armistead of The Energy Report  (1/29/15)

With oil and gas prices down, it's time to cull the herd, sell marginal producers and double down on the strong ones in your portfolio, says Michael Waring, founder of Galileo Global Equity Advisors Inc. In this interview with The Energy Report, Waring explains that this kind of correction happens every 10 years in this space. It presents opportunities for companies to improve and investors to profit—and he names four companies he considers most likely to succeed.



The Energy Report: Michael, you said in November that the Organization of the Petroleum Exporting Countries (OPEC) expected the U.S. to share in reducing production growth to help stabilize the oil market. Have events justified that expectation?

Michael Waring: Events have not. But I think we need to address that statement. I don't believe that the Saudis are out to hurt Iran, to punish the Russians or to take down shale oil production in the U.S. I don't think this is some Machiavellian scheme. I think it is simply a question of market share. The Saudis are saying they have the lowest operating costs in the world, so why should they be the first guys to cut? It makes more sense that the more expensive guys cut production first. When you say it that way, you can actually understand the point the Saudis are trying to make here. It wouldn't be logical to assume that Russia or the U.S. would voluntarily take production down, but it's going to be forced on them by lower prices.

And the Saudis have really talked the price down. When you look at the rhetoric of the last two months, they've gone out of their way to drive it down. I think the basic attitude has been that if the high-cost guys don't want to voluntarily reduce production, we'll make them reduce it by lowering the price to the point where it hurts.

TER: Will those low prices do permanent damage to the North American industry?

MW: I wouldn't use the word permanent, but damage is being done that will take probably more than a couple of years to recover from.

I think that the smaller oil and gas companies on the shale oil and gas treadmill—and I refer to it as a treadmill because they have to keep drilling aggressively if they want to keep their production flat or growing—have a real problem now because the banks won't lend to them, the bond markets are closed to them and they can't issue equity because the stocks have collapsed. You'll see consolidation. And it's going to shake a lot of the marginal guys out of the business.

"Investors want to use this as an opportunity to clean house and go high grade into the companies that will give good torque on the way up."

This happens every 10 years in the oil and gas industry. It is a commodity business after all, and what's happened to the price isn't way out of line with what's happened in the past. This is actually a good thing about the industry: It tends to be self-correcting and cleansing. What happens at a moment like this is that the good guys, with really good plays, are solid and secure. It's the marginal guys that get squeezed out, and the marginal guys tend to drive the cost up over time because everybody is outbidding for services. If you clean all those guys out, then you have a reset back to a lower cost base, and a focus on oil and gas plays that make sense and generate a good economic return through full-cycle pricing.

TER: What should investors do in this market?

MW: In our own portfolio, if we have two or three names in the energy sector that we were interested in, or that we owned but didn't have a high degree of conviction in, we would use this as an opportunity to sell those names and double down on the two or three stocks that we have a high degree of conviction in—that we know will dramatically outperform coming out the other side. That's a key. Investors probably want to use this as an opportunity to clean house on the energy portion of their portfolios and go high grade into the companies that will give good torque on the way up.

TER: Is there a silver lining for oil and gas investors in this dark cloud of falling prices?

MW: In every previous cycle, prices 6–12 months after the bottom are up quite sharply. I don't know the exact timing this time around, but I do know that the harder and faster prices come down, the harder and faster they're going to go up. That's typically been the case, unless you want to utter those very dangerous words: "This time is different."

The point I would make is that we have an opportunity to buy shares in companies where the stock price is down 50–60%, but the business models are not impaired and the companies have a solid asset base. We are actually being given a gift. If you can look out one year, it will be a gift to own these stocks at fabulous, attractive valuations.

TER: The Energy Information Administration (EIA) is forecasting Brent crude averaging $58/barrel ($58/bbl) in 2015 and $75/bbl in 2016. What's your forecast?

MW: We wouldn't be too far off that. I just had to send an estimate out to a client, and we're thinking $70–75/bbl oil in 2016, and we're depending on natural gas at $2.75–3.25 per thousand cubic feet ($2.75–3.25.Mcf).

TER: Is that oil price Brent or West Texas Intermediate (WTI)?

MW: That's WTI. I wouldn't say they're trading at parity, but the gap between Brent and WTI has narrowed dramatically.

TER: Do you expect that to remain the case? They've been running $3–4/bbl apart.

MW: On a go-forward basis, I'm expecting it to remain narrower than it's been historically, or for the last two years, let's say.

TER: The EIA's forecast seems to point to an extended period for lower prices. What oil and gas investments are safe in such a market?

MW: We have to remain focused on the fundamentals behind the business. It's a moment where psychology has taken hold, and people have forgotten, overlooked or can't be bothered with the fundamentals. The fundamentals of each company on its own will tell us what we need to know. If you look at the supermajors and large-cap oil companies, from Suncor Energy Inc. (SU:TSX; SU:NYSE) to Canadian Natural Resources Ltd. (CNQ:TSX; CNQ:NYSE)—we don't own those names and those aren't part of our universe—any company of that stature is going to be just fine. Likewise, a company like PrairieSky Royalty Ltd. (PSK:TSX) on the royalty side is going to be fine. It's debt free with a lot of cash. There are ways to play this sector at the moment, looking at companies with very attractive valuations, solid balance sheets, and secure assets and cash flow going forward. Something like PrairieSky, in my mind, would certainly fit the bill.

TER: Are you expecting mergers and acquisitions (M&A)?

MW: I think there will be consolidation in the business. I think that's inevitable. Having weak players without a lot of choices in terms of flexibility going forward will lead to mergers and consolidations. But good companies with good asset bases won't have to be in the M&A game. All they need to do is focus on those assets.

TER: You have a diverse portfolio of companies. Are the companies you're referring to in that portfolio?

One-Day Well Performance Tests Coming Under Scrutiny

Are one-day performance tests misleading investors?
From Bloomberg:
Tests done on new wells that boosted the fortunes of oil developers by billions of dollars during the U.S. shale boom are increasingly coming under scrutiny. 
The one-day performance tests, which regularly spike company shares on their results, don’t provide enough data to predict future potential, according to a study by Drillinginfo, an Austin, Texas-based analytics and data firm. Additionally, few rules or standards govern the tests, industry observers say, making for inconsistent findings at best. 
The result is that a practice that helped draw significant financing for drillers in an era of $100-a-barrel oil could become a liability as the price collapse leads investors to take a closer look.

“Now more than ever, it’s a priority for the industry to be more transparent, and do a better job at communicating what the longer-term productivity of wells in basins are,” said James Sullivan, a New York-based analyst with Alembic Global Advisors. Skepticism, he said, “is only going to grow.” 
Drillinginfo’s results don’t stand alone. Other research, including by Australian mining and petroleum conglomerate BHP Billiton Ltd., have yielded similar results. 
Along with the short time frame of the initial testing, developers use a range of procedures that can boost first-day output, according to Allen Gilmer, Drillinginfo’s chief executive officer and more than a dozen other analysts and company officials interviewed about the tests.
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Baker Hughes Has Record-Breaking 4th Quarter, Then Lays Off 7,000 People

From Fuel Fix:
Baker Hughes said Tuesday it will lay off 7,000 mostly in the first quarter of 2015, amid a crude oil price slump and drilling slowdown it expects to worsen in the next quarter. 
The announcement came shortly after the oil service company reported that its net income for the three months ending Dec. 30 rose to a record high of $663 million, or $1.52 a share. After adjustments to exclude deconsolidation of a joint venture, the company reported an earnings per-share of $1.44. 
In the same period of 2013, Baker Hughes reported $248 million in profit. 
The layoffs are an about 11 percent cut to the 62,000-plus employees Baker Hughes said it employs globally on Tuesday. The company said it expects to book a one-time charge in the next period in the range of $160 million to $185 million for severance, and said it is reviewing its facilities for possible closures. 
“This is really the crappy part of the job, and this is what I hate about this industry frankly,” said Martin Craighead, Baker Hughes Chairman and CEO told analysts on a conference call discussing the results. “This is the industry, and it’s throwing us another one of these downturns, and we’re going to be good stewards of our business and do the right thing. But these are never decisions that are done mechanically.” 
Baker Hughes’ fourth quarter was exceptional by almost any other measure. The company’s reported adjusted earnings per share of $1.44 soundly exceeded analysts’ expectations of about $1.07 per share. Across 2014, the company said it saw $1.71 billion in net income, compared to $1.1 billion in 2013. 
Several analysts on the call praised CEO Craighead’s performance during a question and answer session. In a note to clients, energy investment investment bank Tudor, Pickering, Holt & Co. LLC called the past months “one heck of a quarter.”
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Thursday, January 29, 2015

Antero Resources Announces 2015 Capital Budget and Guidance

DENVERJan. 20, 2015 /PRNewswire/ -- Antero Resources Corporation (NYSE: AR) ("Antero" or the "Company") today announced its 2015 capital budget and guidance.
Antero Resources logo.
Capital Budget and Guidance Highlights:
  • Initial capital budget for 2015 is $1.8 billion, a 41% reduction from the 2014 capital budget of $3.05 billion
  • Drilling and completion budget for 2015 is $1.6 billion, a 33% reduction from the 2014 capital budget of $2.4 billion
  • Plan to operate an average of 14 drilling rigs between the Marcellus and Utica Shale plays in 2015, down from 21 at year-end 2014
  • Plan to complete 130 horizontal Marcellus and Utica wells in 2015, down from 179 in 2014
  • Net daily production for 2015 is projected to average 1.4 Bcfe/d, an approximate 40% increase over 2014's average net daily production of 1.0 Bcfe/d
  • Net daily liquids production for 2015 is projected to average 37,000 Bbl/d (16% of total production)
Antero plans to execute a drilling program in 2015 supported by the following key attributes:
- Attractive per unit development costs and well economics in the core of the rich gas Marcellus and Utica Shaleplays
- Diversified firm transportation portfolio enabling Antero to price over 70% of its natural gas production at currently favorable TCO, Chicago and Gulf Coast indices
- 1.8 Tcfe hedge position with a mark-to-market value of approximately $1.6 billion at December 31, 2014
Commenting on the 2015 capital budget and guidance, Paul Rady , Antero's Chairman and CEO, said, "Despite the challenging commodity price environment, Antero is well positioned to continue executing on our development program and achieve peer-leading growth and margins.  Our ability to generate production growth of 40%, while materially reducing the 2015 drilling and completion budget, is a testament to the momentum established and efficiencies attained from having the largest development program in Appalachia." 
Mr. Rady further commented, "Our production and capital budget guidance assumes the deferral of completions in the Marcellus during the second and third quarters of 2015 in order to limit natural gas volumes sold into unfavorable pricing markets including TETCO and Dominion South.  Based on our projections for 2015, we will not have access to favorable markets for Marcellus gas in excess of the volumes included in our guidance until the previously disclosed regional pipeline project is placed into service, which is currently projected to be in the fourth quarter of 2015.  Consequently, we have adjusted our Marcellus plan so that we can sell the vast majority of our gas into more favorable markets.  We will continue to monitor commodity prices throughout the year and may revise the capital budget lower if conditions warrant." 
2015 Capital Budget
Antero's initial capital budget for 2015 includes $1.6 billion for drilling and completion, $50 million for fresh water distribution infrastructure, and $150 million for core leasehold acreage acquisitions.  Antero's capital budget excludes Antero Midstream's (NYSE: AM) $425 million to $450 million capital budget relating to high and low pressure gathering pipelines and compressor stations.  Antero Midstream announced its 2015 capital budget and guidance today in a separate news release, which can be found at www.anteromidstream.com.
The $1.6 billion drilling and completion budget represents a 33% reduction in drilling and completion capital as compared to the 2014 budget.  The budget decrease is primarily driven by continuing capital efficiency improvements, a reduction in rig count and the deferral of 50 Marcellus well completions, which were previously scheduled to occur during the second and third quarters of 2015, into 2016. 
Antero has implemented 2015 well cost reduction measures and continues to improve development efficiencies of its resource contained in its 543,000 net acre core position in Appalachia.  The primary 2015 cost reduction measures and development efficiencies are detailed as follows:
- Reduced service costs related to current industry trends
- Reduced drilling days per well
- Increased average wells per pad drilled
- Increased lateral lengths
- Reduced completion stage lengths
- Eliminated drilling in step out areas that do not have existing midstream infrastructure and access to currently favorable natural gas markets
Approximately 60% of the drilling and completion budget is allocated to the Marcellus Shale and the remaining 40% is allocated to the Utica Shale.  During 2015, Antero plans to operate an average of nine drilling rigs in theMarcellus Shale in West Virginia and five drilling rigs in the Utica Shale in Ohio.  The Company expects to complete approximately 80 horizontal wells in the Marcellus Shale and 50 horizontal wells in the Utica Shale.
In 2015, Antero plans to continue consolidating acreage in the core of the southwestern Marcellus rich gas play and the core of the Utica rich gas play in southern Ohio.  However, given the current commodity price environment, Antero has reduced its 2015 land budget by $300 million, or 67%, to $150 million for 2015.  Consistent with historical practices, the Company does not budget for acquisitions.
The 2015 fresh water distribution infrastructure budget of $50 million has been reduced by 75% from the 2014 water infrastructure budget of $200 million.  The 2015 budget includes the addition of 78 miles of pipeline and eight fresh water storage impoundments to Antero's fresh water distribution system.  Since Antero has completed the majority of the main water trunklines within its consolidated acreage position, the 2015 water distribution infrastructure budget is focused on extensions to the existing system to accommodate the Company's development program.
The following is a comparison of the 2014 capital budget to the 2015 capital budget.
($ in MM)







Budget Comparison

2014

2015

% Change









Drilling & Completion

$2,400

$1,600

(33%)
Water Infrastructure

200

50

(75%)
Land




450

150

(67%)
Total Capital Budget

$3,050

$1,800

(41%)
Average Operated Drilling Rigs

21

14

(33%)
Operated Wells Completed


179

130

(27%)











The 2015 capital budget is expected to be fully funded through internally generated operating cash flow and available borrowing capacity within Antero's existing bank credit facility.
2015 Guidance
Antero's 2015 net daily production, including liquids, is expected to average 1.4 Bcfe/d which represents an approximate year over year increase of 40% compared to 2014 average net production of 1.0 Bcfe/d.  Net liquids production is expected to increase to an average of 37,000 Bbl/d in 2015, primarily driven by increasing development of rich gas areas of the southwestern core in the Marcellus Shale and the rich gas core of the Utica Shale.  NGL production guidance assumes that Antero continues to reject ethane, leaving it in the gas stream to be sold at gas Btu value.
Assuming the execution of the $1.6 billion drilling and completion capital plan discussed above, the Company is using the following key assumptions in its projections for 2015:
Net Daily Production (MMcfe/d)


1,400
Net Residue Natural Gas Production (MMcf/d)


1,175
Net NGL Production (Bbl/d)


33,000
Net Oil Production (Bbl/d)


4,000
Cash Production Expense ($/Mcfe)(1)


$1.50 – $1.60
Marketing Expense, Net of Marketing Revenue ($/Mcfe)


$0.20 – $0.30
G&A Expense ($/Mcfe)


$0.23 – $0.27
Natural Gas Realized Price Differential to Nymex Henry Hub Before Hedging ($/Mcf)(2)(3)

$(0.20) – $(0.30)
Oil Realized Price Differential to Nymex WTI Before Hedging ($/Bbl)(2)


$(12.00) – $(14.00)
Natural Gas Liquids Realized Price (% of Nymex WTI) (2)


48% – 52%
Net Income Attributable to Non-Controlling Minority Interest ($MM)(4)


$23 – $27





(1)
Includes lease operating expenses, gathering, compression, transportation expenses and production taxes
(2)
Based on current strip pricing as of January 19, 2015
(3)
Includes Btu upgrade as Antero's processed tailgate and unprocessed dry gas production is greater than 1000 Btu on average
(4)
Associated with the approximate 30% ownership interest in Antero Midstream Partners LP held by the public
Commodity Price Sensitivity
Including Antero's substantial hedge position, and based on commodity prices as of January 19, 2015, a$0.50/MMBtu change in Nymex Henry Hub, assuming regional basis prices maintain the current relationship to Nymex Henry Hub, results in an estimated change to 2015 EBITDA of less than $1 million.  Similarly, a $10.00/Bbl change to Nymex WTI, assuming NGLs maintain the current price relationship to Nymex WTI, results in an estimated change to 2015 EBITDA of $30 million.
Antero Resources is an independent natural gas and oil company engaged in the acquisition, development and production of unconventional liquids-rich natural gas properties located in the Appalachian Basin in WestVirginia, Ohio and Pennsylvania. The Company's website is located at www.anteroresources.com.
This release includes "forward-looking statements".  Such forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond Antero's control. All statements, other than historical facts included in this release, are forward-looking statements.  All forward-looking statements speak only as of the date of this release. Although Antero believes that the plans, intentions and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions or expectations will be achieved. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements.  Nothing in this press release is intended to constitute guidance with regard to Antero Midstream Partners LP.
Antero cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company's control, incident to the exploration for and development, production, gathering and sale of natural gas, NGLs and oil. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating natural gas and oil reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, and the other risks described under the heading "Item 1A. Risk Factors" in Antero's Annual Report on Form 10-K for the year ended December 31, 2013.

SOURCE Antero Resources Corporation

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Only 8 New Utica Shale Permits Issued Last Week; Rig Count Rises

The latest weekly update on Utica shale permitting from the Ohio Department of Natural Resources shows that only 8 new permits were issued last week, in only 2 different counties.

5 new permits were issued for Monroe County sites, all to Antero Resources.  The other 3 permits were all issued to American Energy Utica for wells in Jefferson County.  Those 3 permits push Jefferson County to 52 total permits, making it the 8th Ohio county to cross the 50-permit mark.

With this latest activity, there are now 1,781 horizontal permits issued for Utica shale drilling in Ohio.  1,324 wells have been drilled, 726 wells are producing, and after dropping down to 43 last week, the Utica rig count is back up to 48.

View the report here.

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Monday, January 26, 2015

Magnum Hunter Cuts Way Back on Spending, Will Drill No New Utica Shale Wells This Year

From Reuters:
Oil and natural gas producer Magnum Hunter Resources Corp said on a conference call on Friday it has cut all capital spending amidst plunging commodity prices, expecting prices to remain low for at least the next year. 
The small exploration company focused on natural gas production in the Marcellus and Utica Shales, had scheduled the call with investors with one day's notice to assuage concerns about its future as its shares have plunged 81 percent in the past year amid sinking natural gas prices. 
"Rumors of our death have been greatly exaggerated," Chief Executive Gary Evans told investors. 
Magnum's board plans to meet on Monday to discuss 2015 budget plans. At most, the company will spend $100 million this year, Evans said.

"When you're in a death spiral of prices in this business, you're crazy to be spending money," Evans said. "We're not spending any money right now."
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Stone Energy Not Planning Any Utica Shale Drilling For 2015

From a Stone Energy press release:
2015 Capital Expenditure Budget 
Stone's Board of Directors has authorized a 2015 capital expenditure budget of $450 million, which assumes planned sales of minority working interests in certain targeted assets. The budget also excludes acquisitions and capitalized SG&A and interest. The budget is allocated approximately 75% to Deep Water/Gulf Coast, 8% to Appalachia, 4% to Business Development and 13% to Abandonment expenditures. The capital budget and allocation of capital across the various areas is subject to change based on several factors, including commodity pricing, liquidity, permitting times, rig availability, regulatory, non-operator decisions and the sales of working interests in certain targeted assets. 
The Deep Water capital budget is focused on development and exploration drilling, facility installations for development work, completion operations, and seismic and lease acquisition. Stone expects to participate in drilling two non-operated exploration wells in the first quarter of 2015, drill the Cardona #6 well, and complete the Amethyst discovery well and install a flowline back to the Pompano platform. A portion of the budget is also allocated to the expected fourth quarter of 2015 arrival of the platform rig for the Pompano platform drilling program. 
The Appalachia capital budget includes securing additional core lease-hold interests and drilling several Marcellus wells in the first quarter before releasing the Marcellus drilling rig. No further Marcellus drilling is projected for the rest of the year. Late in the fourth quarter of 2015, Stone expects to receive a dual-purpose Utica/Marcellus rig for a 2016 drilling program that is capable of drilling in either shale formation. 
Capital dedicated to the GOM conventional shelf will be primarily used for recompletions, improvements to existing infrastructure and required plug and abandonment operations. For increased efficiencies, the conventional shelf and deep gas operating groups have been consolidated within the deep water operations. The remainder of the capital budget is focused on onshore business development opportunities. 
Capital expenditures for 2014 are expected to total approximately $875 million, which excludes capitalized SG&A and interest and is lower than the $895 million authorized by the Board.
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Ohio Village Finds Itself Slightly Overwhelmed by Oil and Gas Money

This report on New Matamoras, Ohio comes from the Marietta Times:
The village saw its 2015 general fund nearly quadruple Wednesday night as officials accepted a check for more than $300,000 from Marietta-based MNW Energy LLC at the Village Council meeting. 
Mayor John Schmidt was hesitant to say how the village will spend the $307,687.25, which was received as an up-front payment for leasing the mineral rights under 72 acres owned by the village to Triad Hunter for five years. MWN facilitated the lease. 
“I’ve got committees and every committee is going to be involved in this with input to the rest of the council. We’ve made no decisions whatsoever,” said Schmidt. 
Town finances are tight. The village has only barely managed to operate in the black for the past three years, noted Schmidt. 
The $300,000 check was so large that village clerk Patty Martin sought guidance on how the village should handle the funds. 
“I called the state auditor’s office because we’ve never received this much money before. She told me we need to put this in the general fund,” explained Martin.
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Why Did Chesapeake's Stock Drop in 2014?

From The Motley Fool:
Last year started off with so much promise as Chesapeake Energy Corporation (NYSE:CHK ) was about to turn the corner on its long anticipated turnaround. The company's first quarter was exceptional as its earnings beat the street and were up 97% from the first quarter of 2013. As the second quarter drew to a close its stock was up nearly 15% and was vastly outperforming the market. Unfortunately the company's positive momentum hit a brick wall when oil prices unexpectedly rolled over and crushed what had been turning out to be a great year for the company. In the end the nearly 44% crash in oil prices pushed Chesapeake Energy's stock down by more than 22% as we see on the following chart. 
CHK ChartCHK data by YCharts 
Obviously, we can point a finger at oil as being the culprit that ruined the company's year. However, on the bright side, things could have been much as the company was in a much better position to weather the storm this time energy prices went south.
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