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Thursday, December 14, 2017

Pipeline Company Sued After Spill Near Family's Home

From The Intelligencer:
Scarcely more than 1-month-old on Oct. 19, tiny Amelia Gantzer couldn’t have been ready for pipeline contractors to surround her home with noisy trucks, machines and hoses for about a month to clean up a drilling fluid spill. 
Ohio Environmental Protection Agency spokesman James Lee said officials cited Texas-based Summit Midstream Partners for an unauthorized release of bentonite clay into the stream along Belmont County Road 5 on Oct. 19. Charles and Kacey Gantzer, Amelia’s parents, live in a home along this stream near the community of Glencoe, along with their other daughter, 18-month-old Adaline. 
“At times, the noise was so loud, it was difficult to hear my 2-month-old baby crying in the next room,” Kacey Gantzer said regarding the company’s cleanup efforts. 
“No one should ever feel like they are trapped in their own home.” 
The stream in question, commonly known as Williams Creek, flows toward Glencoe, which is south of St. Clairsville and west of Bellaire. It eventually empties into McMahon Creek, which leads to the Ohio River. Christian Turak said the family’s previously serene atmosphere in the relatively isolated setting gave way to “absolute chaos” Oct. 19.
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Appeals Court Settles Another Ohio Leasing Case

From the Energy & Environmental Law Blog:
Last week, the United States Sixth Circuit Court of Appeals issued its decision in Eclipse Res.—Ohio, LLC v. Madzia, concerning a dispute between a landowner and a lessee regarding the latter’s drilling rights.  Among other things, the court found:
  • The lease, which conveyed to the lessee a broad grant of rights to use the landowner’s property for drilling—including the right to transport oil and gas through the property “from other lands”—authorized drilling a horizontal well through the landowner’s property from a well pad located thereon and producing from adjacent property not owned by the landowner;
  • A separate subsurface-easement agreement, which only pertained to drilling operations on the landowner’s property, did not modify the lease to restrict off-lease production, in the absence of any language in the easement evidencing an intent to modify the lease; and
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Tuesday, December 12, 2017

$60 is the New Magic Number for Shale Oil Drillers

From Bloomberg:
For America’s shale drillers, the tipping point to boost production looks to be $60 a barrel.

It’ll take a sustained run above that price in New York before drillers rethink their spending plans for 2018, according to JPMorgan Chase & Co. Until then, activity looks to be “range-bound," said analysts led by Arun Jayaram in a Wednesday research note detailing their talks with operators in the Permian shale basin in Texas and New Mexico.

Among Permian explorers, “none expected to materially alter course as long as WTI stays in the $45-55 range," despite OPEC’s decision last week to extend their own production cuts through 2018, Jayarum wrote. A one- to two-quarter run above $60 was “the consensus catalyst for another leg higher."

That said, some explorers say they plan to add “a rig here or there into next year, with very few mentions of rig drops," according to the report.
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EIA: Appalachian Basin is Producing More Natural Gas Than Any OPEC Country

From Forbes:
This week in one of their daily Today In Energy columns, the Energy Information Administration highlighted the tremendous growth of natural gas production in the Appalachian Basin:

Shale gas production in the Appalachia region has increased rapidly since 2012, driving an overall increase in U.S. natural gas production. According to EIA’s Drilling Productivity Report, natural gas production in the Appalachia region—namely the Marcellus and Utica shale plays—has increased by more than 14 billion cubic feet per day (Bcf/d) since 2012. Overall Appalachian natural gas production grew from 7.8 Bcf/d in 2012 to 22.1 Bcf/d in 2016 and was 23.8 Bcf/d in 2017, based on EIA data through October 2017
This 200% increase in Appalachian natural gas production since 2012 has had significant implications in the U.S. market. It has driven down costs for consumers, is fueling a renaissance in the chemical manufacturing industry, and has helped push coal-fired power plants out of business.
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Another Natural Gas Power Plant is Coming to Ohio

From The Toledo Blade:
Construction is expected to begin in January on Oregon’s second major power plant fueled by natural gas, a $900 million project that reinforces how America’s fracking boom is upending the energy marketplace. 
The Ohio Power Siting Board on Thursday agreed to issue a permit to a Massachusetts developer planning to build the 955-megawatt project on behalf of Clean Energy Future-Oregon, LLC. 
Plans call for that plant to begin operating in 2020 next to the 960-mw Oregon Clean Energy plant that went online this summer. 
Both are attractive to the 13-state regional grid operator that includes Ohio, PJM Interconnection LLC, because each will have the capacity to produce more electricity than FirstEnergy Corp.’s cash-strapped Davis-Besse nuclear plant in nearby Ottawa County. 
FirstEnergy has said it may close Davis-Besse prematurely unless it finds a buyer or gets assistance from the Ohio General Assembly to help that plant and its Sammis coal-fired power plant in southern Ohio. Rock-bottom natural gas prices have resulted in coal and nuclear plant retirements elsewhere in the United States.
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New Data Debunks Claims that Fracking Drives Down Property Values

by Seth Whitehead, Energy in Depth

The Wall Street Journal published an infographic this week based on new Moody’s Investors Service data  that further debunks the oft-repeated “Keep It In the Ground” movement claim that fracking drives down property values.
The WSJ graphic shows state-by-state property value trends since 2007, which happens to be about the time the U.S. shale revolution took off.
Notably, eight of the nine states that have experienced the most robust property value growth over the past decade— an increase of 40 percent or more since 2007, according to the graphic — are major oil and natural gas producing states.
Seven of those states — Texas, North Dakota, New Mexico, Louisiana, Oklahoma, Wyoming and Montana — have had significant shale development since 2007 (fracking has been conducted in Alaska as well, though not on a major scale).
Also of note is the fact that Pennsylvania, which has emerged as the second most prolific natural gas producer in the U.S. thanks to fracking, has seen more significant property value growth since 2007 (21-40 percent) than neighboring New York (0-20 percent), which has banned fracking.
All told, a vast majority of major U.S. shale states have seen their property values surge — the complete opposite of what fracking opponents have repeatedly claimed.
And this is just the latest real world data debunking these unfounded claims.
For instance, in Tarrant County, Texas — which is the top natural gas producing county in what is by far the most prolific oil and natural gas producing state in the U.S. — the overall market value of property jumped 10.6 percent this year to $219.4 billion from $198.3 billion. This follows a 14 percent jump in 2016. The rest of the Lone Star State isn’t far behind, as home values have gone up 7.1 percent over last year.
In Colorado, which is a top-10 oil and gas producing state, property values have increased 21-40 percent since 2007, according to the WSJ graphic. This data is in line with a 2016 Ballotpedia study that found “no definitive evidence” that oil and gas development is negatively impacting Colorado property values. The study also noted that “homes near oil and gas development in some cases have higher sales prices and values than homes without.”
In Weld County, Colorado’s top oil producing county, a 2015 EID investigation found the median home value rose 15.3 percent in 2014. Weld County Assessor Chris Woodruff told EID that:
“We haven’t seen that proximity to oil and gas operations has caused a loss in value. We’re not seeing that.”
EID has also previously noted that two of Pennsylvania’s most heavily drilled counties, Bradford and Washington, saw median house values increase 61.5 percent and 70 percent, respectively, from 2000 to 2013. These increases came at the same time the combined shale well counts in those counties went from zero to 2,800.
Similarly, home values have gone up 6 percent in Montana, 4 percent in New Mexico, 3.2 percentin Oklahoma and 2.6 percent in Wyoming over the past year at the same time drilling has increased significantly in each of those states.
Clearly, if anti-fracking activists’ claims that fracking drives down property values were true, this data would be trending in the opposite direction. But this WSJ graphic plainly illustrates the fact that property values are actually increasing in areas with significant shale development, busting another tired “Keep It In The Ground” myth.

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December 2017 Shale Activity Maps Published by ODNR

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Monday, December 11, 2017

Utica Shale Activity Stays Steady on Latest ODNR Report

New permits issued last week: 10  (Previous week: 10+-0
Total horizontal permits issued: 2703  (Previous week: 2694+9
Total horizontal wells drilled: 2187  (Previous week: 2184+3
Total horizontal wells producing: 1735 (Previous week: 1735+-0
Utica rig count: 21 (Previous week: 21)  +-0

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Chesapeake Energy Among Drillers Readjusting Drilling Strategy

From Seeking Alpha:
It did not take long after the bottom in the price of oil was reached in early 2016 for drilling to increase in the shale patch. Chesapeake (NYSE:CHK) is no exception in this regard, even though its approach was always comparatively more conservative. In the third quarter of 2016 it was operating 11 rigs, while in the last quarter it had 17 rigs drilling. It is actually a decline compared with the second quarter of this year, when it was employing 19 rigs. Evidently, the rising price of oil has not been enough of a stimulant to keep to the drilling pace that the company tried to have in the spring. 
It is, in many ways, difficult to understand what exactly determined Chesapeake as well as other shale producers to increase rig counts beyond what many of them, and apparently their shareholders, seem to be comfortable with at current oil & gas prices. Perhaps it was the expectation that the price of oil will increase more than it actually did. But in the case of Chesapeake, it is not as helpful as it is for many other companies. Given that it produces significantly more natural gas than crude oil, even though the company has been making an effort to shift production to more oil, it will be a long time before it will reach the point where natural gas will account for less than oil in terms of its revenue stream. Natural gas prices did see a more significant rebound in 2016 compared with oil, from the lows that were reached at the beginning of that year. Perhaps Chesapeake expected to see a continuation of the trend. Perhaps it should have waited for more confirmation of the trend, because as things stand right now, it seems the company may have harmed its chances of reporting some more positive quarters in terms of profitability.
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Thursday, December 7, 2017

Announcement of OPEC Plans Helps Shale Drillers

From Bloomberg:
OPEC and Russia just gave their most implacable foe, U.S. shale, an early holiday gift. 
As corporate boards for American oil explorers prepare to sketch out 2018 drilling budgets, Thursday’s historic agreement by Saudi Arabia, Russia and other major crude producers to extend supply caps for another year may prompt directors to spend more on drilling. That’s because the producer group’s restraint has meant higher prices for U.S. shale drillers, who haven’t been shy about hiring more rigs or flooding global markets with more cargoes.

After climbing out of a crater dug by the worst oil-market collapse in a generation, North American explorers probably will boost spending by 20 percent next year, according to an Evercore ISI survey of industry budget trends. That would follow an estimated 41 percent jump in 2017. 
“The North American E&P industry is very itchy to spend more capital dollars,” said James West, an Evercore analyst who’s recognized as the keeper of the keys to North American spending data going back to the mid 1980s. “They’re in the board rooms right now talking about budgets and OPEC is saying what they’re going to do through 2018.”
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Rig Count Drops on Latest ODNR Report

New permits issued last week: 10  (Previous week: 6+4
Total horizontal permits issued: 2694  (Previous week: 2687+7
Total horizontal wells drilled: 2184  (Previous week: 2180+4
Total horizontal wells producing: 1735 (Previous week: 1729+6
Utica rig count: 21 (Previous week: 23)  -2

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Monday, December 4, 2017

FERC Says Emails Show Rover Lied About Plans to Demolish Historic House in Carroll County

From NGI:
In 2015, Rover purchased the 1843 Stoneman House, which sits near a compressor station along the planned route, and was eligible for listing in the National Register of Historic Places. Rover eventually demolished the house, which FERC said it discovered during certificate proceedings for the project. 
The Commission denied a blanket authorization for routine construction activities when the certificate was issued earlier this year over what it viewed as Rover’s “intentional demolition” in violation of the Natural Gas Act, federal historic preservation laws and other regulations. A blanket certificate allows developers to conduct some construction activities without regulatory approval, but FERC said at the time that the company couldn’t be trusted to comply with its requirements. 
Rover has maintained that it bought the property to use as office space and only demolished it after learning that the home wasn’t suitable. In its Thursday order, FERC revealed that emails with contractors demonstrated that Rover “contemplated demolishing the Stoneman House before purchasing the property.” Rover asked its contractors immediately before buying the property if tearing down the historic house was permitted, according to FERC’s interpretation of the emails. 
The contractor acknowledged that no one could stop Rover from demolishing the house, but said doing so would be a “politically risky strategy,” FERC said in quoting from the correspondence. The contractor instead advised that Rover consider alternate locations for the house, which could be costly and difficult. Absent any action, the contractor advised Rover that it would likely have had to work through additional regulations with the Ohio State Historic Preservation Office to resolve adverse impacts the project would have had on the property. 
“Rather than pursuing either suggestion, Rover demolished the house,” FERC said in its order. “Based on this evidence, the Commission concluded that Rover both understood the requirements of section 106 [of the National Historic Preservation Act] and demolished the house with the intent to avoid the section 106 process.”
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Friday, December 1, 2017

Rover Pipeline Donates $30,000 to Emergency Services in Three Ohio Counties

From The Canton Repository:
Rover Pipeline donated $30,000 to emergency services in local counties crossed by the 713-mile interstate natural gas pipeline system. 
Emergency managers for Stark, Carroll and Tuscarawas accepted the money during a brief ceremony Wednesday. 
Rover is giving $10,000 to emergency services in all counties along the pipeline system, including 18 in Ohio, for a total of $270,000, said Rover spokeswoman Alexis Daniel. The money can be used to buy equipment or train first responders. 
Stark plans to use to the money to rehabilitate equipment and furnishings at the county Emergency Operations Center, which is at the Stark County Jail, said Emergency Management Agency Director Tim Warstler. 
Carroll will use the money to buy furnishings and a Smart Board and Tuscarawas will use its $10,000 to purchase air monitors and a Smart Board for their respective operations centers.
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Court Defines Drillers Right to Deduct Post-Production Costs in Ohio

From BakerHostetler:
As we previously explained, a question arose in Lutz, et al. v. Chesapeake Appalachia, L.L.C.[1] about how royalties should be calculated in oil-and-gas leases. That class-action case addressed leases with common language. Those leases required lessees to pay as royalties “the market value at the well of one-eighth of the gas [produced and sold or used off the premises].” Chesapeake argued that the plain language of the leases required using the “netback” method – which permits energy companies to deduct post-production costs from royalties – for calculating royalties. In effect, the netback method (1) recognizes that gas “at the well” isn’t as valuable as the gas brought to market, because bringing that gas to market entails costs, and (2) requires lessor/landowners to share in those costs. The plaintiffs disagreed and argued that Ohio should follow the “marketable product” rule, which calculates royalties based on the gas’s price once it’s brought to market, and thus imposes upon lessees (the oil-and-gas companies) the costs to market the gas downstream. 
Because there was no controlling rule in Ohio, the U.S. District Court for the Northern District of Ohio certified a question to the Ohio Supreme Court. That question was: “Does Ohio follow the ‘at the well’ rule (which permits the deduction of post-production costs) or does it follow some version of the ‘marketable product’ rule (which limits the deduction of post-production costs under certain circumstances)?” After oral argument in January 2016, the Supreme Court declined to answer the certified question regarding which rule Ohio followed. Instead, the court explained that oil-and-gas leases are contracts under Ohio law; and as contracts, the leases should be interpreted using traditional rules of contract construction. Lutz, et al. v. Chesapeake Appalachia, L.L.C., 71 N.E.2d 1010, 1013 (Ohio 2016). Two justices filed dissenting opinions – one suggesting that Ohio would follow the “marketable product” rule, and the other suggesting Ohio would follow the “at the well” rule. 
With the key question still unanswered, Chesapeake moved again for summary judgment on all the “at the well” leases, asking the District Court to determine how the royalties should be calculated. On Oct. 25, 2017, Judge Sara Lioi granted Chesapeake’s motion. The court focused on two issues: ambiguity and intent. 
Regarding ambiguity, the court rejected the plaintiffs’ argument that the leases were ambiguous, concluding instead that the leases’ clear and unambiguous language resolved the question. Based upon that language, the court concluded that “the Ohio Supreme Court would adopt the ‘at the well’ rule” in the leases that calculated royalties on “market value at the well.” In rejecting the “marketable product” rule, the court explained that states usually use that rule when leases do not address post-production costs. “Construing the lease under the ‘marketable product’ rule would ignore the clear language that royalties are to be paid based on ‘market value at the well.’” Additionally, the court emphasized that a close reading of the royalty provision showed that the parties intended to value the gas “at the well,” not downstream.
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Rivalry Between U.S. Shale and OPEC is Heating Back Up; OPEC Extends Production Cuts

Two articles from Bloomberg look at the reignited battle between U.S. energy producers and OPEC.

From the first article:
When OPEC meets with Russia and other allies in Vienna this week, they won’t be able to declare “Mission Accomplished” in their fight to end the oil glut. Instead, the producers are expected to extend their production cuts to the end of 2018 to counteract the historic surge in U.S. output. In the year since Saudi Arabia abandoned its battle for market share and led an agreement to cut supply instead, international benchmark Brent crude has risen by more than a third. That’s helped cash-strapped petrostates, but also spurred U.S. output to a 35-year high. The tug of war between shale and OPEC that’s dominated the oil market for three years shows no sign of ending.
Click here to view that article page, which includes a timeline detailing the past three years of ups and downs in the international oil market.

From the second article:
The clash between OPEC and America’s oil industry is reaching a day of reckoning.

The U.S. shale revolution is on course to be the greatest oil and gas boom in history, turning a nation once at the mercy of foreign imports into a global player. That seismic shift shattered the dominance of Saudi Arabia and the OPEC cartel, forcing them into an alliance with long-time rival Russia to keep a grip on world markets.

So far, it’s worked -- global oil stockpiles are draining and prices are near two-year highs. But as the Organization of Petroleum Exporting Countries and Russia prepare to meet in Vienna this week to extend production cuts, ministers have little idea how U.S. shale production will respond in 2018.

“The production cuts are effective -- it was absolutely the right decision, and the fact of striking a deal with Russia was crucial,” said Paolo Scaroni, vice-chairman of NM Rothschild & Sons and former chief executive officer of Italian oil giant Eni SpA. Nonetheless, “OPEC has not the same power. The U.S. becoming the biggest producer of oil in the world is a dramatic change.”
Click here to read that whole article. 

OPEC did meet yesterday, and agreed to extend production cuts.  That has sent prices upward even further.  From CNBC:
Oil prices spiked higher on Friday, heading toward 2½-year highs the morning after two dozen crude-producing nations agreed to limit their output through the end of 2018. 
U.S. West Texas Intermediate crude prices rocketed up 98 cents per barrel, or 1.7 percent, to $58.38 by 11:15 a.m. ET. That put the contract within striking distance of $59.05, its peak for this year and the highest level since July 2015. 
International benchmark Brent crude surged $1.11, or 1.8 percent, to $63.74, not far off last month's high of $64.65 that marked the best intraday level since June 2015.
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