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Friday, January 29, 2016

Utica Shale Permitting Dead Last Week, But Rig Count Increases

There were no new permits issued by the Ohio Department of Natural Resources last week, but the rig count on the latest weekly report shows an increase of 2, to 16.

View the report below or download it by clicking here.


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Thursday, January 28, 2016

Utica Shale Drilling Down by Nearly 90% During 3rd Quarter 2015 Compared to 2014

From the Akron Beacon Journal comes this quick look at the ODNR's record of number of wells drilled by quarter in the Utica shale:
1Q 2011: 3.
2Q 2011: 4.
3Q 2011: 5.
4Q 2011: 17.
1Q 2012: 29.
2Q 2012: 47.
3Q 2012: 58.
4Q 2012: 72.
1Q 2013: 90.
2Q 2013: 114.
3Q 2013: 93.
4Q 2013: 112.
1Q 2014: 124.
2Q 2014: 112.
3Q 2014: 144.
4Q 2014: 133.
1Q 2015: 102.
2Q 2015: 63.
3Q 2015: 15.
While the decline has been evident in watching weekly permitting numbers, this look at quarterly drilling data really drives home how much things have slowed.  The collapsing price of natural gas and oil has throttled things back to the pace of 2011, before things really even got started in the Utica shale.  Now the question is how much longer it will take for prices to recover, and how much worse can things possibly get in the meantime?

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Senators Propose Bill That Would Have Significant Impact on Ohio Oil and Gas Leases

From Lexology:
On December 30, 2015, Senate Bill No. 257 was introduced before the Ohio General Assembly that would, if enacted, have a substantial effect on the determination of good title to interests in real property, including oil and gas interests. 
The bill, introduced by Senators Bill Seitz and Michael Skindell and co-sponsored by Senator John Eklund, would amend Ohio Revised Code (“ORC”) § 5301.07, a curative statute entitled “Validating certain deeds – limitations,” by expanding the scope of what defects may be cured, creating a presumption of the validity of recorded instruments, and reducing the time period for curing the covered defects. The current version of the statute provides that, after 21 years, a defect in a recorded instrument conveying an interest in real estate can be cured if such defect was due to: 
  1. the instrument not being properly witnessed;
  1. the instrument not containing a certificate of acknowledgement; or
  1. the certificate of acknowledgment being defective in any respect.
Currently, any person claiming adversely to an instrument with such a defect, if not already barred by limitation or otherwise, may, at any time within 21 years after the time of recording of the instrument, bring proceedings to contest the effect of the instrument.
Read more by clicking here. 

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Tuesday, January 26, 2016

Chesapeake Energy Suspends Preferred Stock Dividends, But is it Just Delaying the Inevitable?

From The Wall Street Journal:
Chesapeake Energy’s preferred shareholders went from despair to elation and back in under two hours Friday when the natural-gas giant suspended dividends on the securities. The loss of income is obviously bad. This is why its Series D convertible preferred shares plunged 17% to an all-time low of under 13 cents on the dollar. 
But maybe investors took brief solace in management’s statement that this was “in the best long-term interest of all company stakeholders.” The securities jumped 27%, only to plunge anew. 
The $170 million saved by not getting paid yourself can be used to buy back other distressed securities and decrease the chance of never receiving your principal. But some owning preferred stock may have been betting that would happen anyway and counting on some juicy dividends in the meantime.
Read the whole article here.

From TheStreet comes this grim analysis of Chesapeake's situation:
If you've managed to weather Chesapeake Energy Corp.'s(CHK - Get Report) 82% stock price drop, you may now believe that the worst is over. 
Unfortunately, though, the reality of the situation is far different. Right now, the situation continues to look rather bleak, with scant possibility of a recover. Here's why Chesapeake belongs to a group of stocks that are destined to collapse and severely punish investors this year. 
Chesapeake has had the worst possible headlines over the past few months. 
The company suspended dividend payments on preferred shares, in a move to manage its cash reservoirs and contain the debt scenario. The company's debt securities are already trading at a significant discount. A series of quarterly losseshave shaken Chesapeake's strongest supporters. The stock recently hit levels that were at their lowest since April 2000. 
To understand Chesapeake's slump. we need to go back in time. In 1989, legendary wildcatter Aubrey McClendon co-founded this Oklahoma-based giant, fuelled by billions of dollars of debt sales. At the time, few could have guessed what was in store -- the protracted decline in oil prices. Chesapeake, once the largest producer of gas in the U.S., used that massive debt pool to purchase hard assets. 
Not paying dividends on preferred shares may save the company millions (on the surface a smart move), but the blemish on its reputation and standing in the market as a result of the same, is without a doubt, staggeringly huge.
Click here to continue reading that article. 

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$10 Oil is a Possibility, According to "Mad Money" Host Jim Cramer

From CNBC:
The market rallied on Thursday simply because the price of oil spiked. 
Does this mean that a bottom in oil has finally been found? Maybe, but Jim Cramer thinks, given the history of oil, that could be harder to predict than most expect. 
When Cramer was recently researching the history of crude oil, he came across various articles written last year at this time, when oil was in the high $40s. 
The talk back then was all about whether oil would have a V-shaped recovery back to $100, or if it would be a U-shaped recovery back to $70. 
"I could not find anyone who thought that oil would break down hard from those levels," the "Mad Money" host said.



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Beck Energy Victory in Oil and Gas Lease Case is Upheld by Ohio Supreme Court

From Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.:
Krugliak, Wilkins, Griffiths & Dougherty oil and gas attorneys, Scott M. Zurakowski, William G. Williams, Gregory W. Watts, and Aletha M. Carver successfully defended energy company, Beck Energy Corporation, in two significant cases in the Ohio Supreme Court, Hustack, et al. v. Beck Energy Corp.,[1] 2016-Ohio-178 and State ex rel. Claugus Family Farm,  L.P. v. Seventh District Court of Appeals, et al., 2016-Ohio-178.  Ohio’s prior oil and gas law stretching back to the 19th Century was being challenged.  The validity of almost every oil and gas lease in Ohio was on the line.  These decisions impact virtually every oil and gas producer (both local and national) who owns lease rights and/or is drilling in Ohio.    
In an unanimous decision from the Ohio Supreme Court (January 21, 2016), the Court affirmed the Seventh District Court of Appeals’ decision and concluded that the G&T 83 Oil and Gas Lease form was not a no-term, perpetual lease nor was the lease void ab initio as against public policy.  Specifically, the Court held: 
  • Delay rental payments are limited to the primary term of a lease.
  • “Capable of being produced” refers to whether a well and not undeveloped land is capable of producing.
  • “Capable of being produced in the judgment of the lessee” does not permit discretion without development and applies to production from a well that has been drilled.
  • The dry hole lease provision only applies if drilling has occurred.
  • The shut-in payment provision only applies if a well is drilled and stops producing or cannot be marketed.
  • Specific lease language disclaiming or waiving implied covenants is contractually valid. 
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Schlumberger and Halliburton Lay Off 14,000 Workers Combined in 4th Quarter 2015

From NGI:
Schlumberger Ltd. lost more than $1 billion in the fourth quarter and reduced its workforce by another 10,000 as tight exploration budgets slammed profits for the world's largest oilfield services company. 
With the United States continuing to be the No. 1 region for its business, the earnings report foreshadows what’s ahead for the rest of the services sector as well as exploration and production (E&P) results. 
To cope with the poor environment and likely downturn through at the least the first half of this year, Schlumberger laid off another 10,000 people during the fourth quarter. The company had indicated in December it was reducing the workforce, but it had not indicated how many people would lose their jobs (see Shale Daily, Dec. 1, 2015).
Read the whole article by clicking here.

From Fuel Fix:
Oil field services giant Halliburton shed another 4,000 jobs in the final three months of 2015, as the Houston-based company continued to aggressively cut costs amid the worst oil crash in decades
With the latest job cuts, Halliburton has reduced its global workforce by 25 percent, a total of about 22,000 employees since its peak in 2014. And more cuts could be on the way if a recovery in crude prices stalls, company executives said Monday morning. 
“2016 is shaping up to be one tough slog through the mud and the industry is going to have to take it a quarter at a time,” CEO Dave Lesar said. 
The company lost $28 million in the three-month period ending Dec. 31 due to impairment charges from asset write-offs and severance pay for laid-off workers.
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Sunday, January 24, 2016

Raymond James Analysts: 2015 Was "Wasteland of Low Oilfield Cash Flows"; 2016 Could "Be a Whole Lot Worse"

From Fuel Fix:
Raymond James offered investors a stern warning Tuesday: $35 per barrel crude could mean a 70 percent collapse in cash flow for oil producers this year. 
The investment bank’s bleak outlook means there could be plenty of pain in early 2016 for producers, who would need to make deep cuts to capital expenditures to stay afloat. But the drilling pullback could also drag the number of active rigs down even further, sending fewer barrels to market and ultimately sparking a sooner-than-expected rebound in prices, Raymond James analysts said. 
“Investors are failing to recognize the fact that a $5 change in WTI translates into a massive ~20 percent change in U.S. E&P cash flows,” the bank’s analysts wrote in a note to clients. “2015 was a wasteland of low oilfield cash flows, spending and general activity levels, and 2016 is currently looking like it will be a whole lot worse.” 
The conclusion was more pessimistic than most. Raymond James weighed figures such as commodity prices, forecast production, service costs and the number of financial hedges oil companies currently have — for both private and publicly traded companies — in its analysis.
The rest of the article can be read by clicking here.

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IEA: Warm Winter, Low Demand May Push Oil Prices Lower Yet

From US News:
The International Energy Agency says oil prices may fall further this year due to low demand, warm winter weather and an oversupply of crude. 
The organization, which advises countries on energy policy, said in its monthly report Tuesday that global excess supply may reach 1.5 million barrels per day during the first half of the year. 
"Unless something changes, the oil market could drown in over-supply," the IEA said. 
U.S. crude prices have fallen 24 percent since the beginning of the year. Benchmark U.S. crude fell $1.03, or 3.5 percent, to $28.39 a barrel in New York on Tuesday.

Many oil companies, including Chevron and BP, have cut jobs and reduced spending to save money.
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Southwestern and Devon Energy Announce Layoffs

From NGI:
Devon Energy Corp. and Southwestern Energy Corp., two of the biggest U.S. onshore operators, announced this week they would lay off employees over the next couple of months, with Southwestern expecting to fire or reduce the roles of about 45% of its entire workforce. 
Houston-based Southwestern, a natural gas-heavy independent whose work today is focused in Appalachia, said Thursday more than 1,100 employees are expected to be affected. 
"Natural gas prices have continued to decline over the past year, creating conditions where cash flow to fund projects will be significantly lower than it has been the past few years," a Southwestern spokeswoman said. "These organizational changes are required to maintain competitiveness in this low gas price environment." 
Management added that the workforce reductions "result primarily from anticipated lower drilling activity. At the start of 2016, the company had no drilling rigs in operation but has not finalized its capital budget and operating plan for the year."
Read the rest of this article by clicking right here.

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Could Canadian Oil Sands Be the Key to Ending Oil Price Freefall?

From Seeking Alpha:
We are usually concentrated on what OPEC might do regarding crude production, or how U.S. shale production can drop due reductions in drilling capex and high depletion rates. However, the case can be made that there's yet another source of production reduction which is even more economically-incentivized to reduce its production. 
I am talking about the Canadian oil sands, now supplying the world market with more than 2.3 million bpd, which is more than the world's crude supply overhang. This crude is much more expensive to produce on an operational basis and at the same time it sells at a discount. 
The present reality is that while crude being supplied by conventional and shale wells provides positive free cash flow if the producers cut capex, oil sands crude doesn't. It provides negative free cash flow even on an operational basis, no capex required. 
Thus, it doesn't make economic sense to continue producing this crude at the same pace if the more you produce, the more cash you burn. As a result, I expect oil sands crude production to see a significant drop if crude prices do not recover rapidly. This can itself provide for a faster crude price recovery than would otherwise happen.
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President Obama Vetoes Attempt to Repeal EPA's Clean Water Rule

From Farm and Dairy:
Another round of congressional discontent over the U.S. EPA’s Clean Water Rule, better known as the Waters of the United States — was met with a presidential veto Jan. 19. 
A joint resolution of both the House and Senate would have provided congressional disapproval and caused the rule to “have no force or effect.” The resolution, S.J. Res. 22, was approved in the House by a vote of 253-166, and in the Senate by a vote of 53-44. 
The Clean Water Rule is an effort by the EPA, and the Army Corps of Engineers, to clarify and define its jurisdiction over certain streams, wetlands and tributaries. But it became a point of contention for farmers and some lawmakers, who feared the rule would be expanded to include roadside ditches, grass waterways on farms, and streams that only flow occasionally.
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API: Oil and Natural Gas Drilling Down by Half in Fourth Quarter 2015

WASHINGTON, January 19, 2016 – Estimated total U.S. oil and natural gas well completions fell by 51 percent in the fourth quarter of 2015 compared to year-ago levels, according to API's 2015 Quarterly Well Completion Report, Fourth Quarter.

“Our growth as a global energy superpower has been a game-changer for U.S. energy security while making energy cheaper for American consumers,” said Hazem Arafa, director of API's statistics department. “We can’t expect that growth to continue if our own outdated energy polices stand in the way. Reducing unnecessary regulations and speeding up permitting on federal lands will help U.S. producers to compete effectively in the global market under the low-price environment.”

Estimated development oil well completions in 2015 fourth quarter fell 55 percent compared to 2014 fourth quarter estimates. Estimated development gas completions decreased 37 percent over the same period.

For 2015, total well completions decreased 35 percent overall compared to 2014 levels. Oil completions were down 37 percent and natural gas completions were down 28 percent). Total footage drilled was down 27 percent overall.

API is the only national trade association representing all facets of the oil and natural gas industry, which supports 9.8 million U.S. jobs and 8 percent of the U.S. economy. API’s more than 650 members include large integrated companies, as well as exploration and production, refining, marketing, pipeline, and marine businesses, and service and supply firms. They provide most of the nation’s energy and are backed by a growing grassroots movement of more than 30 million Americans.

The 2015 API Quarterly Well Completion Report, Fourth Quarter is available for an annual subscription through API's primary distributor, IHS. If you would like to purchase an annual subscription to this report, please contact IHS at 1-800-854-7179, or visit their website at www.global.ihs.com.
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Carroll County Sets 2016 Budget Amid Oil and Gas Uncertainty

From The Repository:
Carroll County is setting aside $8.88 million for general fund expenses this year as county commissioners recently set their appropriations. 
The general fund appropriation for this year is $61,026 more than what county commissioners appropriated in 2015. 
“I don’t like to see the budget go up at all,” Commissioner Jeffrey Ohler said. “The less money we spend, the better. We like to see the revenue coming in. That doesn’t mean you always have to spend your income stream.” 
A major portion of the general fund provides money for county elected officials, such as the sheriff, treasurer, prosecutor and the commissioners. 
As a part of setting the county spending plan for the year, commissioners also approved $18.32 million for non-general fund appropriations. Included in this category are the county Job and Family Services and the county engineer functions. 
The total spending appropriations for Carroll County spending this year is $27.21 million. 
“This year, I think we will be OK,” Commissioner Thomas White said. “There is a concern that we may have to do due diligence next year. We are watching very closely what the oil and gas industry does. If they will rebound, we will be fine.”
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Thursday, January 21, 2016

Some Indebted Drillers Seen as Opportunities for Fund Managers

From CNBC:
Last year, Toronto-based Sprott Asset Management's energy fund sometimes had only 30 percent of its cash invested, as oil and gas stocks fell fast and furious. 
That's changed. 
Heading into this year, the fund was effectively fully invested, portfolio manager Eric Nuttall said. 
"I really do think the risk has swung from being invested in energy stocks to not being invested in energy stocks," he told CNBC's "Squawk on the Street" just before the new year. 
To be sure, the oil exploration and production sector, facing high levels of debt and falling revenue, is a risky one. But many financial professionals are buying energy companies — if those outfits have relatively strong balance sheets. With stocks trading at huge discounts from their peaks, and oil prices expected to rebound at some point this year, some investors and money managers are beginning to take a second look at companies with high debt.
You can read the rest of the article by clicking here.


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Dropping Oil Prices Push Chesapeake Energy to a 15-Year Low

From Bloomberg Business:
Chesapeake Energy Corp. fell to the lowest since April 2000, making it the worst-performing stock in the Standard & Poor’s 500 Index Tuesday, on investor concern that sinking oil prices would hurt the company’s ability to repay debt. 
The stock fell 13.5 percent in New York, anchoring an average 4.4 percent decline on the Standard & Poor’s 500 Oil and Gas Exploration & Production Index. The $3 puts expiring Feb. 19 were the most-traded Chesapeake option Tuesday. 
"The market is not very kind to the whole group and especially to companies with high debt and very limited financial flexibility," said Fadel Gheit, managing director at Oppenheimer & Co. 
ConocoPhillips was the second-worst performing oil and natural gas producer in the S&P Tuesday, as its shares fell 7.5 percent to $36.40.
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Wednesday, January 20, 2016

Predictions Vary on Where Oil Prices End Up in 2016

From The Repository:
Goldman Sachs says the world begins 2016 with a surplus of 1 million barrels of oil a day, and it will take a year to “digest” the oversupply and balance the market. 
Bank of America Merrill Lynch thinks the average price for 2016 will be $45 per barrel for WTI crude and $46 per barrel for Brent crude. 
The U.S. Energy Information Administration is shooting even lower — $38 for WTI and $40 for Brent. 
Other industry watchers are more optimistic. Oil tycoon T. Boone Pickens told CNBC’s Jim Cramer he expects oil to be around $70 a barrel by the end of the year. But he made the same prediction in 2015.
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North American Oil Drillers Looking at $102 Billion Cash Shortfall in 2016

From Fuel Fix:
North America oil drillers will likely come up $102 billion short on the cash they need to operate this year as crude prices fall to $30 a barrel, according to a study by the consultancy AlixPartners. 
The $102-billion cash shortfall could force more domestic crude producers to take more drastic measures in 2016, including widespread pay cuts or wage freezes, cutting employees’ hours and pressuring suppliers for another 15 to 20 percent reduction in service and equipment prices. 
Many drillers will have to shed the traditional model of cutting items from an existing budget and adopt a so-called “lights on” approach: starting with a budget of $0 and spending only on essentials. 
“They’re quickly beginning to exhaust their options, and that’s why you’re seeing more bankruptcies,” said Dennis Cassidy, managing director at AlixPartners, which specializes in restructuring. “There isn’t an easy solution.”
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One New Permit Issued for Utica Shale Drilling in Ohio Last Week

View the latest weekly permitting update from the Ohio Department of Natural Resources below or download it by clicking here.


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Monday, January 18, 2016

Shale Industry CEO Harold Hamm Predicts $60 Oil by End of 2016

From U.S. News:
Oil executive Harold Hamm says he expects the price of oil to rise to about $60 by the end of the year as drillers in North Dakota, Texas and elsewhere cut production and whittle down the current glut in the market. 
Oil fell to $30 this week, a 12-year low, down 72 percent from $107 in June 2014. Hamm, the CEO of Continental Resources Inc., said in an interview Wednesday that he believes oil is at an inflection point, though he wouldn't say the price has bottomed yet. 
Hamm's company helped lead a renaissance in the U.S. oil industry through the use of horizontal drilling to free oil trapped in shale rock. 
U.S. oil production rose from 5 million barrels a day in 2008 to nearly 10 million in the early part of last year. Combined with OPEC's decision to keep production at high levels, supply eventually outpaced the growth in demand and prices plummeted.

Low oil prices have been a boon to consumers, with average gas prices now below $2. U.S. households saved more than $600 on average at the gas station last year. The Energy Department forecast Tuesday that gasoline would average $2.03 a gallon in the U.S. this year.
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Federal Government Continues Inching Towards Drilling in Wayne National Forest

From the Athens News:
The federal government has taken its next step in a process that could result in oil and gas drilling on the Wayne National Forest in southeast Ohio, though any drilling on federal land in Athens County is unlikely for at least a few years. 
In a news release issued earlier this week, the federal Bureau of Land Management (BLM) announced that it’s now preparing an environmental assessment (EA) “to consider whether or not to lease parcels for the purpose of oil and gas exploration and development.” 
Parcels under consideration, as a result of the BLM receiving “dozens of Expressions of Interest from industry operators,” total 18,800 acres on the Wayne National Forest in Washington and Monroe counties, the news release said.

While the BLM and U.S. Forest Service previously said that 3,150 acres in Athens and Perry counties, and another 9,975 acres in Lawrence County, also were being considered for oil and gas leasing, the current EA is limited to the listed acreage in the national forest’s Marietta Unit, far to the northeast of Athens.
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Thursday, January 14, 2016

01/14/16 Links of the Day: Halliburton Merger with Baker Hughes Fighting for Survival, How Low Will Oil Prices Go, and More

Marcellus Drilling News:  EIA Jan DPR: Marcellus Production Way Down Again, Utica Up   -   "Yesterday our favorite government agency, the U.S. Energy Information Administration (EIA), issued our favorite report, the Drilling Productivity Report (DPR). The January 2016 report shows what the EIA predicts oil and natural gas production will be in February from the seven largest commercial shale plays in the U.S. What does the report..."

ODNR:  New Suite of Well Logs Now Available from Survey Archives   -   "Continuing its efforts to make oil-and-gas well data available to the public, the Division of Geological Survey has released more than 1,850 newly scanned geophysical logs for oil-and-gas wells throughout the state. These logs are available as raster images (in TIF format) or as..."

Cato Institute:  Natural Gas Naysayers Have it All Wrong   -   "In promoting his State of the Union address, which he will deliver tonight, President Obama touts his climate-change policies and the recent Paris climate summit. In reality, neither will have any detectable influence on the climate. But his Clean Power Plan, a cornerstone of our Paris “commitment,” could go a long way toward derailing..."

CNBC:  Half of US Shale Drillers May Go Bankrupt: Oppenheimer's Gheit   -   "Half of U.S. shale oil producers could go bankrupt before the crude market reaches equilibrium, Fadel Gheit, said Monday. The senior oil and gas analyst at Oppenheimer & Co. said the "new normal oil price" could be 50 to 100 percent..."

Toledo Blade:  Natural Gas Prices Drop to Lowest Since ’96   -   "If you’re cold this month, don’t fear cranking the heat up just a tad more. You can afford it. Warmer weather and burgeoning stockpiles of natural gas have pushed prices this month down to their lowest point for gas this month of the year since 1996. “A 20-year low is just remarkable,” said..."

Powersource:  U.S. Oil Producers Remain Under-Hedged in 2016, BAML Says   -   "North American oil producers are still “under-hedged” on their 2016 crude and natural gas price exposures despite last minute deals at the end of last year to limit their risks, Bank of America Merrill Lynch said in a Jan. 8 report. Last June, the bank said that North American companies didn’t have 640 million barrels adequately hedged for 2016 relative to..."

European Commission:  Mergers: Commission opens in-depth investigation into acquisition of oilfield service provider Baker Hughes by Halliburton   -   "The European Commission has opened an in-depth investigation to assess whether the proposed acquisition of oilfield service supplier Baker Hughes by rival Halliburton would impede effective competition in breach of the EU Merger Regulation. Both companies are US-based. Commissioner Margrethe Vestager, in charge of competition policy, said: "The Commission has to look..."

Seeking Alpha:  Halliburton Faces Protracted 'Groveling' for Merger Approval   -   "Halliburton (NYSE:HAL) has been practically groveling for approval of its Baker Hughes (NYSE:BHI) merger. The company has agreed to do anything, including selling assets beyond what is required by the DOJ. After missing a deadline to propose remedies to assuage the EU pursuant to the merger, Halliburton's groveling could become..."

Fuel Fix:  Oil Keeps Falling. And Falling. How Low Can it Go?   -   "The price of oil keeps falling. And falling. And falling. It has to stop somewhere, right? Even after trending down for a year and a half, U.S. crude has fallen another 17 percent since the start of the year and is now probing depths not seen since 2003. “All you can do is forecast direction, and the direction of price is still down,” says Larry Goldstein of the Energy Policy Research Foundation, who predicted a decline..."

Business Journal Daily:  Lawmakers Propose New Regs for Injection Wells   -   "Two state legislators from Trumbull County and another from Ashtabula County say a bill they’ve sponsored in the Ohio House of Representatives will strengthen safety regulations associated with Class II injection wells. State Reps. Sean O’Brien, D-Bazetta, Michael O’Brien, D-Warren, and John Patterson, D-Jefferson, say H.B. 422, if enacted, would sensibly..."


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As Crude Prices Drop Lower, Drillers Searching for Relief

From Reuters:
Pain is quickly growing more acute in the new year at beleaguered U.S. shale companies as a global supply glut sinks crude further to 11-year lows, putting added financial stress on the most heavily indebted. 
Debt and equity investors have all but given up on the exploration and production sector as oil prices tumble lower. In the last year, the SIG index of oil companies fell 42 percent, compared with a 0.6 percent decline in the Standard & Poor's 500 index. 
SandRidge Energy Inc, a once high-flying Oklahoma-based shale company backed by billionaire investors Leon Cooperman and Canada's Prem Watsa, was delisted by the New York Stock Exchange on Wednesday. The stock last traded on the NYSE for less than 20 cents a share. 
Though companies ended 2015 with enough cash on hand to cover interest payments for well into next year, they cannot afford to drill new wells. The gloomier outlook is expected to prod more of them to restructure and give up on trying to ride out a downdraft showing no signs of abating soon.
Read more by clicking here.

The executive vice president of the Ohio Oil and Gas Association, Shawn Bennett, didn't mince words when speaking about the current state of affairs at the Guernsey Energy Coalition:
"Some analysts say it should improve by the second half of 2016, some say it will last much longer than first anticipated. 
"There is no way to sugar coat this and I am not going to try," Bennett emphatically stated. "There has been a 57 percent drop in oil prices, which as of Jan. 7 is at $33.97 a barrel, and a 67 percent drop in natural gas prices to about $1.50 per million British Thermal Units (how natural gas is priced). 
"But people [in the industry] are adjusting. It is not the first time this has happened, and it won't be the last. Gas and oil companies are re-evaluating where and when to drill, and the expected outcome. Production will continue to drop off. It is difficult for them to make ends meet with those prices."
Click here to read the rest of that article from The Daily Jeffersonian.

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Only Three New Utica Shale Permits Issued Last Week

View the report below or click here to download it.



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Wednesday, January 13, 2016

Has OPEC's Strategy to Curtail U.S. Shale Been a "Trillion-Dollar Miscalculation?"

From Forbes:
In 1994 OPEC produced 39.9% of the world’s oil. In 2004, OPEC’s share had risen to 42.1% — just before oil prices would go on a run that would take them above $100/bbl. The rise of shale oil production in the U.S. added 4.9 million barrels per day (bpd) of oil to the market between 2008 and 2014, and OPEC’s share of global oil production fell slightly to 41.2% in 2014. (Note that while there was a ban on exports of U.S. oil, the rise of shale oil backed out imports and put that oil on the open market, and exports of finished products from U.S. oil rose sharply over that time period). While OPEC’s 2014 market share was well below the ~50% market share OPEC held prior to the 1973 oil embargo that rocked global economies, it should be clear that with more than 40% of global production, OPEC maintains a position of dominance over the global crude supply. 
Overall, OPEC members produced 36.5 million bpd of oil and natural gas liquids in 2014. When they met in November 2014, oil prices had already suffered a sharp fall from summer, but crude was still trading at ~$75/bbl. The world was probably oversupplied at that time by 1-2 million bpd, so if OPEC had merely decided to remove 2 million bpd off the world markets — only 5.5% of the group’s combined 2014 production — the price drop could have easily been arrested and maintained in the $75-$85/bbl range. That would have still given them 38.9% of the global crude oil market. For that matter, a production quota cut of 13% could have removed from the market a volume equivalent to all of the U.S. shale oil production added between 2008 and 2014. 
Would that strategy have cost them market share? Sure, a small amount. But assume they then pumped 34.5 million bpd at $80/bbl. That’s just over a trillion dollars in annual revenue. If instead they pump 36.5 million bpd at $35/bbl — which is actuallymore than they are getting as I write this — that’s $466 billion in annual revenues. The annual difference in those scenarios is $541 billion. OPEC already lost out on that much in 2015 from the sharp drop in prices. If prices remain at these levels for most of this year, the foregone revenue for OPEC in 2015 and 2016 will easily top $1 trillion since that November 2014 meeting. 
Was this a miscalculation on the Saudis’ part, or is there a deeper strategy at play? I firmly believe they failed to anticipate how sharply oil prices would drop. I think they believed that oil prices could fall somewhat below $75/bbl for a short period of time, and that would be enough to bankrupt a lot of the shale oil companies and allow OPEC to recapture market share. Instead, the shale oil producers slashed costs, and while some producers have gone bankrupt — and other bankruptcies are undoubtedly on the way — shale oil production has proven to be much more resilient than the Saudis and OPEC expected.
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Company Appeals Ongoing Shutdown of Injection Well

From Business Journal Daily:
A company fighting to reopen an injection well operation in Weathersfield Township along state Route 169 is taking its case to the 10th District Court of Appeals. 
American Water Management Services LLC, Howland, has filed a notice of appeal with the Court of Appeals, 10th Appellate District of Franklin County, asking the court to overturn an order the Franklin County Common Pleas Court issued last month. 
On Dec. 18, the common pleas court dismissed American Water’s request that the judge overturn a decision by the state Oil and Gas Commission, which upheld an earlier order by the Ohio Department of Natural Resources to shut down the injection well. 
In September 2014, the Ohio Department of Natural Resources Division of Oil and Gas Chief Richard Simmers ordered American Water’s two injection wells in Weathersfield Township be shut down in the aftermath of a small earthquake recorded near the deeper well. American Water appealed to the Oil and Gas Commission, which in August sided with ODNR, affirming the agency’s authority to shut down the wells. 
Last year, the moratorium was lifted for the shallower of the two wells.
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Analyst Looks at What Lies Ahead for Chesapeake Energy This Year

From Seeking Alpha:
Chesapeake Energy's (NYSE:CHK) stock was a standout during the first trading session of 2016, posting an impressive 10% rally in a challenging market. However, few investors have reasons to celebrate - the share price remains near the lowest point of its 10-year trajectory. Based on today's closing price of $4.97 per share, the stock is trading at less than half of the lowest price registered during the sector's previous mega-correction in 2008 ($10.82 per share). 
Chesapeake's heavy debt burden and high operating costs exacerbated the stock's recent declines. 
By the same token, the stock appears intriguing at the current level as Chesapeake has massive leverage to a cyclical recovery in commodity prices. 
In this context, two relevant questions are: when will a cyclical turnaround arrive and what would it take for Chesapeake to survive through the trough without sustaining further significant damage?
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Tuesday, January 12, 2016

Is the EPA Preparing to Backtrack from Conclusion That Fracking Doesn't Pose a Systemic Threat to Groundwater?

From Fuel Fix:
A landmark study by the U.S. Environmental Protection Agency that concluded fracking causes no widespread harm to drinking water is coming under fire — this time, from the agency’s own science advisers. 
The EPA’s preliminary findings released in June were seen as a vindication of the method used to unlock oil and gas from dense underground rock. A repudiation of the results could reignite the debate over the need for more regulation. 
Members of the EPA Science Advisory Board, which reviews major studies by the agency, says the main conclusion — that there’s no evidence fracking has led to “widespread, systemic impacts on drinking water” — requires clarification, David Dzombak, a Carnegie Mellon University environmental engineering professor leading the review, said in an e-mail. The panel Dzombak heads will release its initial recommendations later this month. 
“Major findings are ambiguous or are inconsistent with the observations/data presented in the body of the report,” the 31 scientists on the panel said in December, in a response to the study. 
The scientific panel’s recommendations aren’t binding and the EPA is not required to change its findings to accommodate them. But they already are raising questions about the most comprehensive assessment yet of a practice that has driven a domestic oil and gas boom but also spawned complaints about water contamination. 
An EPA spokeswoman said the agency will use comments from the scientists and the public to “evaluate” possible changes to the report.
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Bloomberg: Drillers Can Pump Oil at Low Cost from "Mothballed Wells"

From Bloomberg:
U.S. shale explorers will be able to bring new supply to market this year even with most of the rig fleet idled and drilling budgets cut to the bone. Their secret: thousands of mothballed wells. 
Companies from Exxon Mobil Corp. to EOG Resources Inc. have 3,994 wells drilled between Jan. 1, 2014, and Aug. 31 with active permits that had not been completed as of Dec. 18, according to William Foiles and Andrew Cosgrove, analysts at Bloomberg Intelligence
The fracklog, as the cache of suspended wells stretching from south Texas to the Rocky Mountains is known, is growing as the worst crude-market downturn in a generation spurred them to halt projects early to conserve cash. Global oil markets are in turmoil amid a market-share war between OPEC and American shale explorers that has created a flood of excess supply and slashed the value of crude by two-thirds in the past 18 months.

Finishing the wells means significantly higher spending efficiency for these companies because they won’t have to put new holes in the ground to add to output, Cosgrove said in a telephone interview. “Costs for the drilling portion are essentially sunk.”
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Weatherford's Financial Collapse Could Kill Halliburton-Baker Hughes Merger

From Seeking Alpha:
Schlumberger (NYSE:SLB), Halliburton and Baker Hughes are considered the top three oil services firms. Weatherford International (NYSE:WFT) is ranked number four, particularly for firms with high exposure to land drillers. Post-deal, it may be logical to assume that Weatherford could be strong enough to maintain a competitive landscape. However, in my opinion, Weatherford may not survive much longer amid a free fall in oil prices and $7.7 billion of debt. 
In Q3, Weatherford experienced a 6% sequential decline in revenue and incurred a $98 million pretax loss. Its North America operations (37% of revenue) are particularly concerning. Loss from operations were $54 million; this followed a $92 million loss in Q2. The competition is so cut throat that in Q3, Weatherford had to scale back two product lines - rentals and pressure pumping - due to "punitive economics." 
$7.7 Billion Debt Load Appears Untenable 
Weatherford built its number four position in the sector via acquisitions when oil prices were much higher. In the process, it also amassed $7.7 billion debt which is at junk levels. It has nearly the same amount of debt as Halliburton ($7.7 billion versus $7.8 billion), though its run-rate EBITDA is nearly one-third less ($1.4 billion versus $4.0 billion). With debt/run-rate EBITDA at over 5x, Weatherford has the worst balance sheet amongst its peers, including National Oilwell Varco (NYSE:NOV) and Oil States International (NYSE:OIS).
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Friday, January 8, 2016

As 2015 is Left Behind, Attention Turns to What to Expect in 2016

From Forbes:
2015 was an abysmal year across the energy space. It was one that investors in the sector won’t soon forget. Master Limited Partnerships (MLPs) lost their swagger, with theAlerian MLP Index (AMZ), a composite of the 50 most-prominent energy MLPs, losing 32.6% — the second worst performance on record. Many of the upstream (i.e., oil and gas producers) MLPs suffered losses of 80% or greater. The broader energy sector got hit hard too, with the Energy Select Sector SPDR ETF (XLE) down 24.7% on the year. Refiners were about the only segment of the traditional energy sector that performed above the broader market averages. 
However, one old adage has been true as long as the oil industry has existed: the cure for low oil prices is low oil prices. Most analysts expected some recovery in 2015, but OPEC’s strategy of trying to defend market share ultimately pushed crude oil prices below the $40 support level. But the longer prices remain low, the harder they are likely to swing in the other direction. 
The timing of that reversal remains murky, but today’s price of oil is definitely unsustainable. The world’s oil supply will not meet global demand over the next few years at $35/bbl. Producers will need a higher price before they will invest the capital to ensure that future demand is met at a reasonable price. 
The problem right now is that an extended period of $100/bbl oil drove oil production out well in front of demand. Even though the break even price on the marginal barrels is well above the current price, producers are trying to hang in and survive until the market comes back into balance. This has resulted in rising crude oil inventories despite rising demand and poor economics for oil production. 
While the handwriting is on the wall, most analysts don’t believe the market will begin to balance until the 2nd half of 2016 at the earliest. As long as global crude inventories remain uncomfortably high, the price of crude will contain to be under siege — regardless of the sustainability of $35/bbl oil.
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Meanwhile, the American Petroleum Institute released its 2016 State of American Energy report:




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Thursday, January 7, 2016

President of Ohio Oil and Gas Association Posts 2015 Year in Review, Says Increased Severance Tax Not Expected Anytime Soon

From the OOGA:
I would like to take a moment to reflect on past year and all that has materialized within the Ohio Oil and Gas Association in 2015. As I reflect on what we’ve seen over the year, the litany of issues the industry has faced this particular year have been seemingly insurmountable. I can't think of any time in the last 40-years where the hill to climb has seemed so high. 
We have seen crude oil prices fall below $40 per barrel and natural gas prices are languishing at record lows, creating a general sense of gloom and doom among our industry on a global scale. 
The price rut, brought to us mainly by Saudi Arabia, which is making an effort to control market share, is wreaking havoc on the United States’ domestic oil and gas industry. Decisions made half way around the globe are having real life implications right here in Ohio. Simultaneously, the collapse of the natural gas price in Appalachia, mainly due to lack of adequate infrastructure to get the gas out of the basin, is making life practically impossible for many members of the Ohio Oil and Gas Association. 
Seeking Resolution: 
All while this was going on, some of our elected officials in Ohio still believed that this would be a good time to increase the severance tax. After months of interested party meetings with the Administration, affected agencies and appointed House and Senate members to the 2020 Tax Policy Study Commission, I am pleased to report that it looks like we won’t have to discuss the severance tax for the next year or so. 
The Association went through every aspect of oil and gas taxation from cost recovery to post production with the group. It was truly a thorough process, and we believe the Commission finally realized that the industry was not over exaggerating our dire situation.
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Wednesday, January 6, 2016

ODNR Releases Updated Activity Maps for January 2016




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No New Permits Issued in Utica Shale Last Week

View the latest weekly Utica shale permitting update from the Ohio Department of Natural Resources below, or click right here to download it.


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Tuesday, January 5, 2016

Outlook Continues to Appear Bleak for Chesapeake Energy

From Bloomberg Business:
Chesapeake Energy Corp. is having its worst year since 1998 after halting dividend payouts, slashing drilling budgets and cutting one of every six employees failed to rescue the energy explorer from the deepest gas-market rout in 16 years. 
Chesapeake lost 77 percent of its market value this year, on pace for 2015’s weakest performance in the Standard & Poor’s 500 Index. The Oklahoma City-based company’s bonds are trading for as little as 25 cents on the dollar amid heightening concern that Chesapeake will struggle to raise enough cash to avoid defaulting on its debts. 
Chief Executive Officer Doug Lawler may be running out of options to revive Chesapeake’s fortunes less than three years after activist investors led by Carl Icahn handpicked him to replace deposed co-founder and CEO Aubrey McClendon. A complicated debt-reduction measure announced this month with bondholders probably indicates Chesapeake is having trouble raising cash through asset sales, according to Fitch Ratings.

The debt exchange “signals management’s difficulty selling assets in the current stressed hydrocarbon pricing environment” to help close a cash shortfall and cover interest payments, said Dino Kritikos, a credit analyst at Fitch. Gas fields Chesapeake is trying to sell are losing their luster since prices fell to levels not seen since 1999, he said.
From The Motley Fool comes this reasoning for listing Lawler as a CEO on the hot seat:
In a recent interview with The Wall Street Journal, Chesapeake Energy CEO Doug Lawler said, "if I'm not adding value for the shareholders, I fully expect Carl [Icahn] to fire me ... That's the reason I came here." Well, with the company's stock price down nearly 80% since the start of the year, it may be time for Lawler it start getting worried.

Lawler's main misstep was overspending cash flow to chase growth. That's quite the opposite of what he was brought in by Icahn to do, which was to put an end to the company's free-spending ways. Instead, he followed the path of his predecessor, and worse yet, he chose to push production growth into an environment that was oversaturated with oil and gas. 
In doing so, he burned through the bulk of Chesapeake's cash, leading to a rapid return to a lofty debt level.
In further Chesapeake news, the settlement involving underpaid royalties to Pennsylvania landowners now appears to be in jeopardy.  From the Times-Tribune:
A proposed $11 million settlement between Chesapeake Appalachia and landowners who claim they were wrongly charged post-production costs is in jeopardy after the state attorney general’s office filed a motion opposing the deal. 
The agreement between Chesapeake, the nation’s second-largest natural gas producer, and leaseholders was preliminarily approved by a federal judge in October. Since then it has been roundly criticized by the attorney general’s office and other opponents who contend it is overly broad and will release Chesapeake and its subsidiaries from liability on other claims not directly related to the lawsuit. 
The class action lawsuit, filed in 2013 by the lead plaintiffs, Joseph and Billie Demchak of Meshoppen, alleged Chesapeake improperly deducted post-production costs from royalty payments associated with the transportation and refining of natural gas extracted from Marcellus Shale. 

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