Friday, April 29, 2016

04/29/16 Links of the Day: Oil & Gas Expo in Belmont County, New Pipeline Safety Bill Approved, and More

Bloomberg:  Schlumberger CEO Sees 'Full-Scale Cash Crisis' in Oil Sector   -   "Schlumberger Ltd. cut more jobs in the first quarter as the world’s largest provider of oilfield services sees the industry in an unprecedented downturn. The global headcount dropped to 93,000 at the end of the first quarter with the..."

Business Journal Daily:  ODNR Officials Tout Well Oversight at Chamber Event   -   "The plugging of the injection well blamed for a dozen tremors of the Mahoning Valley in 2011 should be on its way to being completed, an official with the Ohio Department of Natural Resources said Tuesday. The plugging of the Northstar No. 1 well, one of the assets of the former D&L Energy, went through the appeals process..."

WTOV News:  Oil and Gas Expo Draws Thousands to Belmont County   -   "It's an industry meeting of the minds each year; the annual Belmont County Oil and Gas Expo is underway. Belmont County has hosted the expo for five years now. The event draws thousands of people to the area. More than 100 businesses signed on to take part in..."

Forbes:  Why Pipelines Could Soon Feel the Next Devastating Phase of the Oil Bust   -    "When oil and natural gas prices began their swan dive in 2014 and continued their descent in 2015, the casualties seemed obvious. Exploration and production companies would need to file for bankruptcy protection and restructure en masse. Banks that financed these companies would need..."

Press release:  Range Announces First Quarter 2016 Results   -   "Commenting, Jeff Ventura, the Company's CEO said, "Range continues to achieve excellent operational results with unit costs declining by 10% year-over-year and significant operational efficiency gains being realized. The improvements in our unit cost structure combined with our best-in-class well costs make Range resilient..."

Press release:  EV Energy Partners Announces Suspension of Cash Distribution, Repurchase of Senior Notes and Schedules First Quarter 2016 Earnings Release   -   "EV Energy Partners, L.P. (Nasdaq:EVEP) today announced that it has elected to suspend distributions to unit holders, effective immediately. As part of the amendment to its senior secured credit facility signed earlier this month, the Partnership was authorized to use up to $35 million of balance sheet cash or available borrowing base capacity to repurchase..."

Press release:  EQT Reports First Quarter 2016 Earnings   -   "EQT Corporation (NYSE: EQT) today announced first quarter 2016 net income attributable to EQT of $5.6 million, or $0.04 per diluted share (EPS), compared to earnings of $173.4 million, or $1.14 per diluted share for the first quarter of 2015. Adjusted net income was $10.5 million in the first quarter..."

Press release:  EQT Current 2016 Operational Forecast   -   "EQT Corporation (NYSE: EQT) issued a 2016 capital expenditure (CAPEX) forecast of $1.0 billion, excluding business development, land acquisitions and Midstream capital associated with planned asset dropdowns in 2016; and including $820 million for..."

Press Connects:  MYSTERY OF SICK FOALS: Was fracking to blame on PA farm?   -   "From a mile away, Allerage Farm’s magnificent barn can be seen amid rail fences, rolling pastures and red and white outbuildings on a hill rising some 1,500 feet from the Susquehanna River basin. Drawing near, the Bradford County, Pennsylvania postcard..."

Natural Gas Now:  Tom Wilber Trashes Fracking with Foal Fairy Tale   -   "Tom Wilber is a good writer, if only it wasn’t fracking fairy tales that he wrote. He’s a fractivist groupie. I like his writing style because it flows so naturally, which is, I suppose, why he’s so good at telling fairy tales. It’s like he’s right there with you in your living room doing a master storyteller routine, complete with a full repertoire of voice modulations, wild gestures and big eyes, pulling you..."

NGI:  Pipeline Safety Bill Unanimously Approved by House Energy Committee   -   "After tweaking a controversial section on emergency orders, the House Energy and Commerce (E&C) Committee unanimously approved a pipeline safety bill to reauthorize the Natural Gas Pipeline Safety Act for five years, beginning in..."

NGI:  House Republicans, State Regulators Skewer BLM Over Flaring, Venting Rules   -   "House Republicans and state regulators sparred with Democrats and the Department of Interior’s (DOI) Bureau of Land Management (BLM) at a hearing Wednesday to discuss proposed rules governing flaring and venting of associated natural gas on public and tribal lands, with both sides in open disagreement..."

Press release:  Hess Reports Estimated Results for the First Quarter of 2016   -   "Hess Corporation (NYSE: HES) today reported a net loss of $509 million, or $1.72 per common share, in the first quarter of 2016 compared with a net loss of $389 million, or $1.37 per common share, in the first quarter of 2015. On an adjusted basis, first quarter 2015 adjusted net loss was $279 million. Lower realized selling prices reduced..."

Seeking Alpha:  Hess (HES) John B. Hess on Q1 2016 Results - Earnings Call Transcript   -   "Our strategy in this lower for longer price environment is guided by three principles: preserve our balance sheet, preserve our operating capabilities and preserve our growth options. To preserve our balance sheet, on February 4, we successfully executed a capital raise of $1.6 billion through common and mandatory convertible preferred stock..."

Press release:  Antero Resources Reports First Quarter 2016 Financial Results and Increases Production Guidance   -   "Antero Resources Corporation (NYSE: AR) ("Antero" or the "Company") today released its first quarter 2016 financial results and announced increased 2016 production guidance. The relevant consolidated financial statements are included in Antero's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, which has been filed with..."

Natural Gas Now:  An Insane Dimock Verdict Gets Challenged   -    "Cabot Oil & Gas has filed its detailed challenge of the Dimock verdict with the court and the introduction is a thing of beauty. We have reproduced it below for interested readers and highly encourage all to review it and also peruse the entire filing, which may be found here. The Dimock verdict was, as Cabot’s attorney’s demonstrate, “an aberrant result..."

SNL:  EPA Wants Closer Look at Energy Transfer's Rover Gas Pipeline   -   "The U.S. EPA requested more involvement from federal and state agencies in feedback on FERC's draft environment impact statement for three connected Energy Transfer Partners LP natural gas pipeline projects. In response to a draft environmental impact statement, or EIS, released April 18, EPA recommended further efforts to remedy the "insufficient information" provided in the draft..."

Press release:  CONSOL Energy Reports First Quarter Results; Record Quarterly E&P Production of 97.5 Bcfe; Total E&P Division Cash Costs of $1.33 Per Mcfe; Borrowing Base Reaffirmed at $2 billion; Liquidity Increases to $1.3 billion

Seeking Alpha:  CONSOL Energy (CNX) Nicholas J. DeIuliis on Q1 2016 Results – Earnings Call Transcript   -   "We’re starting to see the dry Utica Shale play into the mix and help further lower cost. And we expect the exciting play to become a much bigger part of our future development program. Now, as for our gas hedging program, we layered in a substantial amount of hedges in the out-years. By layering in these hedges, we’re able to lock in our revenue..."

Huffington Post:  Fossil Fuel Companies Need to Become Renewable Energy Companies   -   "It seems clear that Exxon Mobil and other parts of the fossil fuel industry have tried to suppress the science of climate change. I am not surprised that these companies acted in their short-term self-interest, and I expect them to continue to advance those interests. Their deception is disappointing and..."

Press release:  Southwestern Energy Announces First Quarter 2016 Financial And Operating Results   -   "We began the year by leveraging the momentum built by our operational teams in 2015 and are making good progress executing on our strategic initiatives to position the Company for long-term value creation," remarked Bill Way, President and Chief Executive Officer of Southwestern Energy. "While adjusting activity levels to align with the commodity prices, we exceeded guidance on production volumes and associated costs by..."

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Washington County Man Says Pipeline Construction Caused His Car Crash

From the Marietta Times:
Heavy rain and heavy construction created a perfect storm for one Coal Run resident’s car to slip into a muddy, watery ditch last weekend, creating a clash with the company working to lay 9,000 feet of pipeline through local rural areas. 
Mitchel Barth, a 22-year-old in the process of purchasing his family’s home on Weppler Road, claims that the construction company’s project is destroying the roadway and making it unsafe for residents and drivers. 
The firm, Two Guns Consulting and Construction out of Dallas, was recently awarded a project to lay 8-inch pipeline in a right-of-way along Weppler Road or Blue Racer Midstream, which develops and operates oil and gas assets, and will likely be in the area into early summer. 
“There was about two inches of rain that (Friday) night, and when I was coming home Saturday I went straight into a ditch,” Barth said. “They did the tracks about three months ago and put gravel across for my driveway, but with all the rain, there was nothing holding the gravel in place.”
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Newsweek Op-Ed Asks Why News That Might Make Fracking Look Better Gets Hidden

From Newsweek:
Why would a public research university boasting a top-100 geology program deliberately hide its work? Because, as lead researcher Amy Townsend-Small explained, "our funders, the groups that had given us funding in the past, were a little disappointed in our results. They feel that fracking is scary and so they were hoping our data could point to a reason to ban it." 
That an environmentalist ideologue would see evidence of fracking's safety as "disappointing" is to be expected. But that a university would so flagrantly put politics before science is deeply troubling. 
Hydraulic fracturing has significantly bolstered America's energy independence by unlocking an abundance of domestic oil and gas. In fact, our country has officially surpassed Russia and Saudi Arabia as the global leader in natural gas and oil production, respectively. 
Just as important, these newfound energy resources have delivered economic benefits to Americans. In 2012, the average U.S. household had an extra $1,200 thanks to the energy boom. The oil and gas industry, meanwhile, supports more than 2 million jobs—a number that is expected to grow to nearly 5 million by 2025.
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Preparation Continues on Ethane Cracker Site in Belmont County

From The Intelligencer/Wheeling News-Register:
Today, contractors working for FirstEnergy Corp. are demolishing the shuttered power plant to make room for the massive petrochemical complex, which would cover nearly 500 acres between the Ohio River and Ohio 7. Instead of watching pipelines ship lucrative Marcellus and Utica shale ethane to cracker plants along the Gulf Coast or in Canada, the Upper Ohio Valley could see a manufacturing renaissance if PTT Global Chemical proceeds with its planned multibillion-dollar petrochemical complex. 
A final investment decision is expected by the end of this year. 
“We have made great progress over the past year,” Belmont County Commissioner Mark Thomas said. “We have held numerous meetings with the company leaders and their representatives. Everyone is working collaboratively to make sure we have everything in place.” 
Toasaporn Boonyapipat, president and CEO of PTT Global Chemical America, agreed with Thomas in terms of the cooperation and communication. 
“A slowdown in drilling and decrease in oil prices will pose an opportunity for the project, as construction costs will likely fall, not to mention construction companies are likely to be more competitive in securing major projects as well,” he said. “PTT Global Chemical America’s decision will be based upon the cost and operational analysis we receive from the firms performing the front-end engineering design.”
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Thursday, April 28, 2016

Arguments Heard in Appeal of Rulings on NEXUS Pipeline Survey Access

From the Akron Beacon Journal:
Three appeals court judges today heard 33 minutes of oral arguments in the continuing fight over survey access in Medina County for the $2 billion Nexus Pipeline. 
The Akron-based 9th District Court of Appeals will decide the case at sometime in the future, Judge Donna Carr said at the conclusion of the short hearing. About 35 Medina County landowners attended the session. 
Also hearing the arguments were Judges Carla Moore and Beth Whitmore. 
The Texas-based Nexus Gas Transmission LLC has won 17 court decisions on access in 11 counties along the pipeline’s route including appeals’ court decisions, said attorney James Hughes of Bricker & Eckler LLP in Columbus, who was representing the pipeline company. 
Ohio state law grants the pipeline companies access to private property to determine if it is suitable for a pipeline, he said.
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New Gas-Fired Power Plants Will Create 4,000 Local Jobs, Fuel Every Household in Ohio

by Jackie Stewart, Energy in Depth

Thanks to the Utica Shale formation’s staggering production and associated infrastructure needs, Ohio is experiencing an enormous influx of investment.  Last year, EID investigated Ohio’s newly announced pipeline and natural gas-fired power plants, and found that billions were slated to come into the state from these projects. The natural gas-fired power plants, either currently under construction or planned, will provide over $6 billion and more than 4,000 jobs to Ohioans, all while generating power for up to 5.85 million homes. With approximately 4.5 million homes statewide, that means that natural gas plants will literally fuel the entire state of Ohio.  Here’s a look at the newly announced projects along with those currently under construction.
Ohio Natural Gas Power Plants
CompanyProjectInvestmentMegawattsHouseholds ServicedJobsStatus
Advanced Power ServicesCarroll County Energy$900 million700750,000730Under Construction
South Field Energy LLCColumbiana County Energy$1.1 billion1,100900,000900Pending
Oregon Clean Energy LLCOregon Clean Energy$860 million869500,000475Under Construction
NTE EnergyMiddletown Energy Center$600 million475600,000430Under Construction
Rolling HillsRolling Hills Generating Station$700 million1,4141,400,000400Completed
Clean Energy Future LordstownLordstown Energy Center$850 million800700,000700Under Construction
Apex Power Group LLCGuernsey Power Station$1 billion1,1001,000,000525Pending
$6 billion6,4585.85 million4,160

According to the 2015 U.S. Census, Ohio has a population of just over 11.6 million statewide, an average of 2.58 people per household, and 4.5 million homes statewide.  With the recent announcement of the Guernsey Power Station, our analysis shows that projects currently under construction and those about to break ground will in fact power the entire state of Ohio, all while providing the critical construction jobs our state so desperately needs.
These jobs are great jobs for Ohio.  In fact, just this week construction started at the Clean Energy Future Lordstown Power Plant in northeast Ohio. Don Crane, President of the Western Reserve Building and Construction Trades Council, said,
“This is touted as the best labor agreement that anyone has ever seen on either side of the table in the oil and gas industry. It will be a model going forward that gets used often.”
Mr. Crane is correct, in fact every one of the plants currently under construction are using local labor and more specifically the building and construction trades, debunking a long-standing talking point used by environmental activist groups:  that the oil and natural gas industry does not hire local.  In fact, the General President of the Laborers’ International Union of North America (LIUNA) recently spoke out in support of shale development saying,
“Natural gas is the most viable … and economical solution to meet future electricity needs and clean energy goals.”
So what does this mean for local communities?
Well, the $850 million Lordstown plant which started construction this week, means 700 jobs for local workers.  A reality that has been described by Arno Hill, mayor of Lordstown, as a “dream come true.”  This is not a surprising statement, especially given the fact that the company will pay the local school district $20.25 million, starting with $500,000 next week. The plant will spur economic growth in the Youngstown region that is estimated in the range of $30 billion, according to the Youngstown Regional Chamber.  What’s more is that there are already talks of a second plant to come!
The same thing was true for the Carroll County Energy plant, which is currently under construction. Again, a $900 million project that is currently employing 700 local workers, using 100 percent union labor, and stimulating the regional local economy in a host of different ways, including  a pay out to the local school district to the tune of $1.3 million year for 30 years (that’s a total of $39 million to Carroll County local schools.)  What’s more is practically as soon as they broke ground in Carroll County, the company announced an even larger plant was slated for eastern Ohio.
It’s likely that the good news will continue as natural gas is expected to become the most widely used fuel for electricity generation in 2016, according to the U.S. Energy Information Administration’s (EIA) short-term market forecast released this week. As EIA explains, natural gas will provide 33 percent of generation in 2016 while coal’s share will likely fall to 32 percent. Natural gas has been the number one source on a monthly basis previously, but this would be the first time in modern history that natural gas has overtaken coal on an annual basis.
From EIA’s outlook:
“EIA’s Short-Term Energy Outlook (STEO) is now forecasting that 2016 will be the first year that natural gas-fired generation exceeds coal generation in the United States on an annual basis. Natural gas generation first surpassed coal generation on a monthly basis in April 2015, and the generation shares for coal and natural gas were nearly identical in 2015, each providing about one-third of all electricity generation.”
This is good news for Ohio.  Within the next few years, locally-produced natural gas will power all of Ohio households.  None of this could be achieved without the hard work of local men and women who are currently building these plants and therefore ensuring that families across the state will be able to keep their lights on for years to come.
Copyright Energy in Depth. Reprinted with permission. Original article:

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Gas Development Credited for Monroe County's 340% Tax Revenue Increase

From Gas & Oil:
Just two years ago, the Appalachian region in Ohio suffered one of the most devastating job losses of 2013: the Ormet aluminum smelting plant in Monroe County, located along the Ohio River closed, leaving 1,000 people out of work in Ohio and West Virginia. If the job losses weren’t bad enough, the closure also meant that millions in tax revenues would also be lost. But then along came the development of Ohio’s Utica Shale. 
Thanks to natural gas development in the area, Monroe County has had an over 340 percent increase in tax revenue, which has not only filled the void left by the plant closure, but has also brought back hope to the community that had been shattered two years ago. Today, natural gas development has been said to be the “lifeline” for Monroe County. 
Tax revenues increased from $1.5 million in FY2010 to a whopping $6.8 million in FY2015. The tax loss from Ormet, during the same period of time, would have created a $4.5 million deficit from the county budget. 
Instead, the oil and natural gas industry not only covered that loss but added supplementary millions, as is evident by the county sales tax records.
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Wednesday, April 27, 2016

T. Boone Pickens Outlines a Plan to Make OPEC Irrelevant

From a T. Boone Pickens article written for Forbes:
Thankfully, we’re now a nation with options. Credit stunning advances in horizontal drilling and fracking that position us rich in energy resources. We’re now the number one natural gas producer in the world, and in the top three for crude oil production. 
America’s potential energy future has never been brighter. But there’s a challenge, and that’s whether we – as a nation – are willing to learn a lesson we should have learned 40 years ago, and that’s putting our own energy future in our own hands. 
The best way to do that is to utilize free market principles and inject serious fuel competition in the transportation mix. Governments at all levels can and should lead the way. One way to start: Open their fleet vehicle and fuel purchasing to competing domestic fuels. Let the cleaner, cheaper, domestic option – and taxpayers – win. Let’s make OPEC and those other oil-producing nations irrelevant.
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Rex Energy Exchanges Notes for Stock, Trying to Weather Downturn

From Rex Energy:
Rex Energy Corporation (Nasdaq:REXX) announced that it has closed two privately negotiated exchange transactions with certain holders of the company's securities, including the 8.875% Senior Notes due 2020 ("2020 Notes"), the 6.250% Senior Notes due 2022 ("2022 Notes"), the Series A 6.00% Convertible Perpetual Preferred Stock ("Preferred Stock"), and the 1.00%/8.00% Senior Secured Second Lien Notes due 2020 (the "Second Lien Notes"), in which those holders agreed to exchange their existing securities for shares of the company's common stock.

2020 Notes and 2022 Notes 
Rex Energy executed a privately negotiated exchange pursuant to which the holder exchanged $26.9 million in aggregate principal amount of the 2020 Notes and 2022 Notes and waive all accrued and unpaid interest for approximately 5.2 million shares of common stock. With this transaction, the company's interest savings in 2016 and 2017 will be $1.8 million and $2.1 million, respectively. Total interest expense savings from the exchange will be approximately $11.6 million. 
Preferred Stock and Second Lien Notes 
The company executed a second privately negotiated exchange with a different holder pursuant to which the holder agreed to exchange $13.8 millionin face value of the Preferred Stock and waive all accrued and unpaid dividends, and to exchange $2.2 million in aggregate principal amount of the Second Lien Notes and waive all accrued and unpaid interest, for an combined total of approximately 1.9 million shares of common stock. With this transaction, the company will save approximately $0.8 million in dividend payments per year. 
"These exchanges represent another positive step in our efforts to improve our balance sheet and enhance our overall liquidity profile," said Tom Stabley, Rex Energy's President and Chief Executive Officer. "With a combined $29.1 million reduction in overall debt and over $12.0 million in savings on interest payments, we are making good progress on our balance sheet and liquidity improvement initiatives and will continue to pursue other strategic enhancements while we weather a challenging commodity price environment."
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Analyst: Chesapeake Energy Stock is Still Being Overvalued

From Seeking Alpha:
If there was a publicly traded equity security that the market knew was worth $0 -- or even had negative equity value from discounted cash flows or some other valuation methodology -- in theory the security should trade at or near $0. However, if the business has some cash flow to offset debt service costs for few months or so, in reality, the security will trade slightly above $0. That's because investors know that the company can kick the can down the road for the time being, and there is "option value" on the equity. As to how large this option value should be, that's largely a function of how much time the business has until it has to throw in the towel, and how big of an upside the business has when you reach or get past the inflection point. 
Many E&P companies are currently in an analogous situation, trading on option value, with perhaps a few months or about a year left before they are forced to default (not covenant breaches that will get waived, but missing interest payments or failing to repay debt). But they potentially possess a large upside in equity if commodity prices rebound during such a time frame. Obviously, these companies have minimal equity value and their bonds are trading at impaired prices to reflect distress and theoretical liquidation values. 
While I have monitored many E&P companies' stock prices as they plummet -- and many of them filed for Chapter 11 since mid-2014 -- Chesapeake Energy's (NYSE:CHK) story stands out given its gravitas (along with one of its key peers, Southwestern Energy (NYSE:SWN)). It was a company with a $20 billion market capitalization and an aggregate enterprise value of above $30 billion less than two years ago, and it is still the second largest natural gas producer in the U.S. Only now, its market capitalization is $4 billion, 80% below its peak, and has a corporate rating of Caa2/CCC.
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Marietta College Professor: New Anti-Flaring Regulations May Produce Opposite of Intended Effects

From the Parkersburg News & Sentinel:
The Obama administration’s clampdown against the flaring of natural gas from shale wells has been heralded by environmental groups because they say it will reduce greenhouse-gas emissions. But these new regulations may wind up doing just the opposite. 
Gas flaring is an integral part of oil and gas production operations when a new well is drilled and completed. Petroleum engineers and geoscientists work together to test the new well so they know the pressures and volumes of crude oil and natural gas the well is capable of producing. This is necessary so they can properly design the equipment on location and pipelines that must be constructed to handle the volumes produced. 
During the testing period, liquids must be captured in tanks on site while natural gas, which is primarily methane, must be flared because pipeline connections typically are not designed and available until after the potential of the well or wells on the pad has been evaluated. 
Flaring is needed for both environmental and safety purposes. Flaring prevents a dangerous buildup of methane at a drilling site and prevents the release of methane, a greenhouse gas, into the atmosphere. In frontier areas like North Dakota and New Mexico, flaring is done when oil production outpaces the installation of gas pipelines. 
The administration, however, says the practice of flaring wastes valuable gas resources. Methane, a potent greenhouse gas that has 87 times the heat-trapping ability of carbon dioxide over a 20-year period, actually accounts for only about 9 percent of all U.S. greenhouse-gas emissions. The administration contends about one-third of the methane emissions in the U.S. come from oil and gas development and has set a target of cutting methane emissions from oil and gas drilling by 40-45 percent of 2012 levels by 2025.
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ODNR Issues No New Permits for Utica Shale Drilling Last Week

Utica shale permitting has been slow for quite some time, but it has been a rare week that the Ohio Department of Natural Resources has had no new permits to post on the weekly activity report.  Last week, though, that was the case.  The rig count remains down at 11.  There are currently 2159 active permits for Utica shale drilling in Ohio, with 1727 wells drilled and 1270 wells producing.

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Thursday, April 21, 2016

Saudi Arabian Prince Has Grand Plan to Reduce Nation's Economic Dependence on Oil

From Bloomberg:
On April 25 the prince is scheduled to unveil his “Vision for the Kingdom of Saudi Arabia,” an historic plan encompassing broad economic and social changes. It includes the creation of the world’s largest sovereign wealth fund, which will eventually hold more than $2 trillion in assets—enough to buy all of Apple, Google, Microsoft, and Berkshire Hathaway, the world’s four largest public companies. The prince plans an IPO that could sell off “less than 5 percent” of Saudi Aramco, the national oil producer, which will be turned into the world’s biggest industrial conglomerate. The fund will diversify into nonpetroleum assets, hedging the kingdom’s nearly total dependence on oil for revenue. The tectonic moves “will technically make investments the source of Saudi government revenue, not oil,” the prince says. “So within 20 years, we will be an economy or state that doesn’t depend mainly on oil.” 
For 80 years oil has underwritten the social compact on which Saudi Arabia operates: absolute rule for the Al Saud family, in exchange for generous spending on its 21 million subjects. Now, Prince Mohammed is dictating a new bargain. He’s already reduced massive subsidies for gasoline, electricity, and water. He may impose a value-added tax and levies on luxury goods and sugary drinks. These and other measures are intended to generate $100 billion a year in additional nonoil revenue by 2020. That’s not to say the days of Saudi government handouts are over—there are no plans to institute an income tax, and to cushion the blow for those with lower incomes, the prince plans to pay out direct cash subsidies. “We don’t want to exert any pressure on them,” he says. “We want to exert pressure on wealthy people.”
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Potential Oil and Gas Lessees Should Look Closely for "Implied Requirement" in Leases

From Gas & Oil:
Under Ohio law, oil and gas leases constitute contracts. As a general matter, the rights and remedies of the parties entering into a contract must be determined by the terms of the written agreement. Over the years, however, Ohio courts have determined that oil and gas leases should include a number of “implied covenants”—provisions which the courts will assume the parties meant to include, even if the contract does not specifically address the issue. These implied covenants include a producer’s obligation: (1) to drill an initial exploratory well; (2) to protect the lease from drainage from wells on neighboring properties; (3) to reasonably develop the land; (4) to explore further after an initial well is drilled on a large tract of land; (5) to market the oil and gas produced; and (6) to conduct all operations that affect the mineral owner’s royalty interest with reasonable care and due diligence. Of these implied covenants, the covenant to reasonably develop the land covered by the lease is one of the most important.

The implied covenant of reasonable development originates from the goal of an oil and gas lease. Namely, the courts have long recognized that a mineral owner’s goal in leasing acreage is to collect royalties on oil and gas produced after wells are drilled. Further, Ohio public policy supports the development of the state’s natural resources. Thus, the implied covenant of reasonable development requires producers to use reasonable diligence to develop the leased acreage. Where a lease covers a significant block of acreage, a producer must often drill multiple wells on the acreage included in the lease. When additional oil and gas development takes place in an area, the implied covenant of reasonable development may also require a producer to further develop the leased property based upon changing circumstances. If a court decides that a producer has violated the implied covenant of reasonable development, the court may award money damages or may order the release of undeveloped acreage, thereby allowing the mineral owner to seek out a producer who will fully develop the acreage.
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Coal's Contribution to Ohio's Electricity Continues to Decline

From the Akron Beacon Journal:
In 2010, coal produced 82 percent of Ohio’s electricity. 
At that time, Ohio had 20 plants that each could produce at least 200 megawatts of power. That was more coal-fired units than any other state in the country. 
By the end of 2015, that percentage had dropped to 59 percent, according to a recent analysis by the Cleveland-based Institute for Energy Economics and Financial Analysis. 
Ten of those 20 coal-fired units have closed: five owned by Akron-based FirstEnergy Corp., two by Duke Energy, one by Columbus-based American Electric Power, one by NRG Energy and one by American Municipal Power. 
American Municipal Power also cancelled plans to build a new coal-fired plant in Meigs County in southern Ohio.
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Consol Energy CEO: "I Believe Two Cracker Plants" Will be Built in Marcellus/Utica Shale Region

From TribLIVE:
The global crash in oil prices and resulting squeeze in financing available to energy companies have raised questions about whether two companies will build ethane cracker plants in the Marcellus and Utica shale regions. 
The head of one of the top shale gas producers in the area, however, predicts both petrochemical facilities will be built in the next decade. 
“We will see one to two ... I believe two cracker plants built in this region,” Consol Energy Inc. CEO Nick DeIuliis said Friday during the University of Pittsburgh's Energy Law and Policy Institute gathering Downtown. 
Such facilities would take ethane — a liquid that comes up with natural gas from many shale wells in Western Pennsylvania, Northern West Virginia and Eastern Ohio — and convert it to ethylene and polyethylene, the building blocks of many common plastic products.
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Wednesday, April 20, 2016

Landowners in Carroll and Wayne Counties Facing Lawsuits Over Utopia Pipeline

From The Canton Repository:
A Texas-based pipeline company has started to sue Ohio landowners who won’t let the company’s new pipeline cross their properties. 
Kinder Morgan says it can use eminent domain to take easements for its $500 million Utopia East pipeline. 
Earlier this month, Kinder Morgan filed 10 lawsuits against landowners in Carroll County and a dozen lawsuits against landowners in Wayne County. More court actions could be coming. 
“We do anticipate there will be some filings in Stark County and frankly across the route,” said Allen Fore, Kinder Morgan’s vice president of public affairs. 
Kinder Morgan wants to build 240 miles of new pipeline to carry propane and ethane from Cadiz to the Ohio-Michigan border west of Toledo. 
Locally, the proposed route for the 12-inch-diameter Utopia East pipeline crosses Stark, Tuscarawas and Carroll counties. The pipeline would carry up to 50,000 barrels per day, but could be upgraded to ship more than 75,000 barrels per day.
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Seventy Seven Energy Going Bankrupt; Stone Energy Could Be Next

From Fuel Fix:
U.S. rig contractor Seventy Seven Energy plans to file court papers for Chapter 11 bankruptcy protection next month with a prepackaged deal with creditors in hand, the company said Tuesday. 
Seventy Seven’s agreement with lenders would wipe debt off its books by turning $1.1 billion in debt into equity and the company would operate as normal. It said job cuts were not part of the deal. 
The company is the nation’s 14th largest land driller and the 11th largest pressure pumping company, according to Spears & Associates, but the company gets the bulk of its revenue from Chesapeake Energy, the oil and gas explorer it spun out of in 2014.
Stone Energy could be joining Seventy Seven Energy in the list of companies that do not survive this downturn.  From NGI:
Stone Energy Corp.’s credit facility has been reduced from $500 million to $300 million, resulting in a borrowing base deficiency of $175.3 million, which could lead to a breach of its lending agreement and default, the company said. 
Stone’s bank group told the company of the redetermination on April 13. It has $457 million drawn on the credit facility and another $18.3 million of letters of credit outstanding resulting in the deficiency. Under the terms of its credit agreement, Stone has 30 days to decide if it will repay the loan to eliminate the deficit, add additional collateral to eliminate the shortfall or pay it in six equal monthly installments. 
Stone did not say which option it might choose. The company said in March that given its debt and low commodity prices, a breach of its lending agreements was possible (see Shale Daily, March 15). In that case, lenders could accelerate its debt obligations. Stone said at the time that it was negotiating a waiver or amendment with its bank lenders.

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Monday, April 18, 2016

Law Firm Lists 59 Oil and Gas Companies Who Have Filed for Bankruptcy in 2015-2016

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04/18/16 Links of the Day: $120 Oil in 2 Years?, Fracking Study's Authors Upset at Results, and More

Townhall:  Authors of UK Fracking Study Dismayed that Fracking is Safe   -   "The authors conclude that heavy truck traffic from fracking operations has a negligible impact on the environment. Here’s the funny part: the authors aren’t all that happy with their own findings. But to their credit, the researchers don’t..."

Pittsburgh Business Times:  Beaver County Prepares for Shell Cracker   -   "Beaver County’s actively getting ready for Royal Dutch Shell’s arrival, whether or not the energy giant ultimately decides to build an ethane cracker plant in Beaver County.  That’s the word from a panel who spoke at..."

Energy in Depth:  Activists Push Phony Talking Points on Injection Well ‘Exemptions’ and Drinking Water   -   "Recently, activists and researchers with close ties to the anti-fracking echo-chamber have been pushing claims that oil and natural gas producers are injecting “toxic chemicals” into drinking water sources – and the EPA allows it through..."

Bloomberg:  Drillers Go Rigless as Gas Price Collapse Heralds Austerity Era   -   "Natural gas producers are finally realizing that the age-old adage is true: If you find yourself in a hole, stop digging. Explorers have idled drilling equipment at historic rates -- a drop in prices has resulted in the fewest rigs in at least three decades searching for..."

Forbes:  Why U.S. Natural Gas Prices Should Double   -   "Total supply–dry gas production plus net imports–has been declining since October 2015* because gas production is flat, imports are decreasing and exports are increasing. Shale gas production has stopped growing and conventional gas production has been declining for..."  $120 Oil as Soon as 2018   -   "Today, I’m going to try and tackle the reasoning for my ‘wild’ predictions for oil reaching triple digits by the end of 2017. While I am nearly alone in these forecasts, they are not just pulled out of space, but with deep regard for the fundamental supply/demand picture that..."

Press release:  Rice Energy Enters into Stalking Horse Asset Purchase Agreement to Acquire 27,400 Net Undeveloped Marcellus Acres   -   "Rice Energy Inc. (NYSE: RICE) ("Rice Energy") today announced that it has entered into a stalking horse asset purchase agreement ("asset purchase agreement") with a subsidiary of Alpha Natural Resources, Inc. ("Alpha") to acquire Marcellus and Utica assets in central Greene County, Pennsylvaniafor $200 million in cash, subject to..."

The Intelligencer/Wheeling News-Register:  Statoil Gives $100k for 2014 Monroe County Incident   -   "A June 28, 2014, blast at the Statoil Eisenbarth natural gas fracking site in Monroe County contributed to the death of 70,000 fish, frogs, crayfish, salamanders and other aquatic life, according to the U.S. Environmental..."

Well Said:  A Statement on Cabot's Recent Court Motion   -   "Cabot Oil & Gas Corporation filed a motion that asks the Court to set aside the jury’s verdict in the nuisance case regarding two residences in Dimock, Pennsylvania. We believe that the jury’s verdict disregards overwhelming scientific and factual evidence that Cabot acted as a prudent operator in..."

Reuters:  US Shale Oil Firms Feel Credit Squeeze as Banks Grow Cautious   -   "Nearly two years into an epic oil rout, U.S. shale drillers that have upended global energy markets are finally feeling a credit squeeze as banks make their biggest cuts yet to their loans. Every six months, oil and gas producers and their banks negotiate how much credit..."

Bloomberg:  Shale Gas Headed for Biggest Drop in 3 Years, Sharing Oil's Pain   -   "Natural gas production from America’s biggest shale formations is poised to slide by the most in three years as tumbling crude oil prices force the nation’s energy explorers to cut back on drilling for both..."

Press release:  Alphabet Energy & Coyote North Transform Oil & Gas Enclosed Flares Into a New Source for Cleaner Power Generation   -   "Alphabet Energythe global leader in thermoelectrics for waste heat to power (WHP), and Coyote North, a combustion technology expert and service provider, today announced the availability of the Power Generating Combustor (PGC™). Designed for Quad O compliance, the PGC™ is an integrated combustor and solid-state power generator that converts exhaust heat from enclosed flares into electrical power..."

Press release:  Fitch: Many U.S. HY E&P Loans Could Be Marked Classified by OCC   -   "Many U.S. high yield (HY) exploration and production (E&P) firms could have their loans rated as Substandard, Doubtful, or Loss by the Office of the Comptroller of the Currency (OCC) in their next exam, according to new analysis by Fitch Ratings. Sixty seven percent of Fitch's sample has..."

Press release:  Antero Resources Announces First Quarter 2016 Operations Update   -   "As a result of the recent spring borrowing base redetermination, Antero's borrowing base under its upstream credit facility was reaffirmed at $4.5 billion. Lender commitments under the facility remain at $4.0 billion. The bank syndicate, which is co-led by..."

Press release:  Stone Energy Corporation Provides Activity Update and Borrowing Base Redetermination   -   "Stone Energy Corporation ("Stone") today announced an update on its first quarter operational activities and its borrowing base redetermination. First quarter results are expected to be reported in early May 2016. Production for the first quarter of 2016 was approximately 34 MBoe (or 204 MMcfe) per day, above the first quarter production guidance of 32-33 MBoe per day provided by..."

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Friday, April 15, 2016

Carlyle Considers Purchase of Halliburton-Baker Hughes Assets; GE Interested in Baker Hughes if Merger Dies

From Bloomberg:
General Electric Co. could become one of the top players in the oil services and equipment industry if it decides to bid for Baker Hughes Inc. 
A Justice Department lawsuit filed this week against Halliburton Co. to stop the merger of the world’s second- and third-largest oilfield service companies could soon put Baker Hughes back in play, with GE seen as the most likely bidder. Halliburton and Baker Hughes have said they plan to contest the government’s case, which could delay the timing of any future takeover offers. In December, GE was said to be exploring bids for various assets Halliburton was marketing in an attempt to secure antitrust approval for the deal. 
"This is one way you could really accelerate yourself in the oil and gas industry," J. David Anderson, an analyst at Barclays Plc, said Thursday in a phone interview. "Buy Baker to fill in the gap and all of a sudden, you’re one of the more dominant oil service companies out there."
From Reuters:
Carlyle Group LP (CG.O) has entered the auction for assets that oilfield service providers Halliburton Co (HAL.N) and Baker Hughes Inc (BHI.N) aim to divest to secure antitrust approval for their merger, a person familiar with the matter said. 
Carlyle, a Washington-based private equity firm, is competing against General Electric Co (GE.N), which was already in discussions to buy many of the assets, the person said on Thursday, asking not to be identified because the negotiations are confidential. 
Halliburton and Carlyle declined to comment, while Baker Hughes and General Electric did not immediately respond to requests for comment.

Earlier on Thursday, the Wall Street Journal, citing sources, reported that Carlyle was in serious talks to buy assets worth more than $7 billion from Halliburton and Baker Hughes.

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Thursday, April 14, 2016

Why Did Utica Shale Production Soar in March?

From Market Realist:
According to Baker Hughes (BHI), the Utica Shale currently has 11 active rigs, down from 13 in February 2016. In comparison, 31 rigs were in operation in the shale in March 2015. 
From March 2008 to March 2016, additional natural gas production per rig at the Utica Shale rose from ~0.20 MMcf (million cubic feet) per day to 6.9 MMcf per day, or by ~33x. In the 12 months to March 2016, natural gas production addition per rig rose 25%. 
Utica Shale energy operators 
Steady Utica Shale production can positively affect oilfield equipment and service providers such as RPC (RES), Precision Drilling (PDS), Baker Hughes (BHI), as well as contract drillers such as Patterson-UTI Energy (PTEN). These companies may continue to improve revenues and profits from operating in the Utica Shale if drilling activity rises. Notably, RES accounts for 4.0% of the SPDR S&P Oil & Gas Equipment & Services ETF (XES).
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Chesapeake Energy Gets Good News From the Bank

From The Motley Fool:
While spring is typically a time for optimism and new beginnings, many energy investors had an ominous feeling this spring. That's because the sector's banks would be reviewing the credit they had extended to producers and were expected to be very stringent given the significant deterioration in oil and gas prices since banks last reviewed credit in the fall. There was a grave concern that banks would be so stringent that it could lead to a mass casualty event with a number of producers being forced into bankruptcy. 
Those concerns, however, haven't been realized after banks have been far more lenient than expected, at least with Chesapeake Energy (NYSE:CHK). That's after they reaffirmed the company's $4 billion credit line and agreed not to review it again until June 2017. That provides the company with clear visibility on liquidity for more than a year, which is a huge relief given the company's grave credit concerns. 
Clarity on liquidity 
Chesapeake Energy's banks gave it a big shot in the arm after reaffirming its borrowing base at $4 billion. While the company hadn't borrowed anything on its credit line just yet, it burned through much of its cash balance last year leaving its liquidity uncertain because its banks could have cut deeply into its borrowing base. 
So far though, banks have been very lenient with these credit lines. Fellow oil and gas producer WPX Energy(NYSE:WPX), for example, recently received $1.2 billion in commitments on its credit line, despite unloading $1.2 billion in assets that had backed its facility since the start of this year. Not only that, but WPX Energy's banks amended the facility's terms and covenants to give it "increased flexibility and full access to the facility." As such, it provides a lot of clarity as well as ample liquidity for WPX Energy to use during the downturn.
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Utica Shale Now Has 2158 Permits, 1721 Wells Drilled, and 1259 Wells Producing

The latest weekly permitting report from the Ohio Department of Natural Resources can be viewed below or downloaded by clicking here.

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Wednesday, April 13, 2016

Latest Well Activity Maps Published by ODNR

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Dry Gas Production in Marcellus/Utica Shale Expected to Increase This Year

From NGI:
After nearly two years of contending with historically low commodity prices, a majority of the Appalachian Basin's leading producers have retreated almost exclusively to their dry natural gas acreage, where low breakeven prices and prolific wells are being used to defend against the downturn. 
In the nation's leading gas basin, the move is no surprise. But it marks a shift away from touting natural gas liquids (NGL) growth and what was recently a balance for rigs that were spread more evenly across wet, condensate and dry gas fairways throughout Ohio, Pennsylvania and West Virginia. The precipitous fall in oil prices that began in June 2014 and weighed heavily on the markets for ethane, butane and propane is not the only factor underlying the move. 
Prolific wells, production beats, better economics and a desire to maintain momentum during the slump have all aligned to shape a trend that points to the likelihood of more natural gas production this year in a basin that's saturated with it.
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